It was a struggle, but natural gas bulls emerged victorious in sending natural gas futures higher on Friday to close out a volatile week. Given the tighter supply/demand balance, the more convincing cold outlook for the coming week lifted the January Nymex futures contract 3.8 cents to $2.591. February settled at $2.603, up 3.3 cents day/day.
Cash prices also strengthened, with NGI’s Spot Gas National Avg. climbing 13.5 cents to $2.565.
After recent weather model runs indicated the coming week could be colder than previously forecast, bulls attempted to ride the momentum from the latest government storage report. The Energy Information Administration (EIA) reported a larger-than-expected 91 Bcf withdrawal from storage inventories during the week ending Dec. 4. The draw was several Bcf above the median of major surveys and a whopping 90 Bcf more than what was pulled from storage during Thanksgiving week.
Analysts at The Schork Group “are of the strong opinion” that the 91 Bcf draw was a function of a “true-up” to the prior week’s abnormally small 1 Bcf pull. The Schork team noted that the winter withdrawal season has gotten off to a slow start across much of the Lower 48.
The South Central region pulled a leading 32 Bcf out of storage that included 25 Bcf out of nonsalt facilities and 7 Bcf out of salts, according to EIA.
The 7 Bcf draw from salts follows three straight injections and was the first pull since Nov. 6, The Schork Group said. The Midwest isn’t faring much better when it comes to reducing the massive storage overhang in the region.
“Although it is early in the season and a lot can change between now and April, only 44 Bcf of gas has been delivered thus far to the market,” Schork analysts said. “This pace is 31% below the five-year average, a whopping 54% below a year ago and 9% below normal.”
Tudor, Pickering, Holt & Co. (TPH) analysts said in addition to liquefied natural gas (LNG) running at record levels on the back of Corpus Christi Train 3 commissioning, production trended down as well, shedding 1.5 Bcf/d. This was primarily from associated basins, assisted by the Northeast and Haynesville Shale coming off recent highs as well, analysts said.
The EIA’s 91 Bcf draw, according to TPH, implied the market is 3.7 Bcf/d undersupplied. The latest figure also was the largest seasonal draw reported by the EIA since 2011.
The EIA surprise sent Nymex futures “on a ripper” to finish the day up 5%, TPH said. With any help from weather, the firm could still see “material upside” to the winter strip, which “puzzlingly” has January/February as the lowest points on the 2021 curve. The next EIA report was shaping up “decently” as well despite little help from the weather man, TPH said. Its early modeling pointed to a 125 Bcf draw versus norms of 120 Bcf.
Meanwhile, the weather models left a good taste in bulls’ mouths. NatGasWeather said Friday’s afternoon run of the European dataset added back the nine heating degree days it had lost overnight. Furthermore, the 15-day outlook could be seen as cold enough for the coming week, though still rather bearish for the Dec. 20-24 period.
“We think the back end of the forecast is susceptible to colder trends in time,” NatGasWeather said.
That possibility may have been reflected in Friday’s price action in the March/April contracts. March flipped to a discount to April on Tuesday but moved back to a small premium on Friday. Bespoke Weather Services pointed out that the flip negative earlier in the week may not have been solely because traders were writing off winter. Instead, the price reaction could have been a reflection of the structurally bullish fundamentals in play for 2021.
That theory has some legs. One of the major drivers of gas prices over the summer and again this winter has been the strength in the export market. LNG feed gas soared past 11 Bcf over the Dec. 5-6 weekend and had remained at that level since. Some analysts see further upside in the coming months as some LNG facilities are capable to operate above their nameplate capacity.
However, once out of the winter season, analysts have warned that U.S. exports could be at risk and cancellations likely throughout the summer, though not as severe as those seen this year. While the possibility of LNG curtailments still exists, the TPH analysts said hefty storage draws so far this winter in Europe may bode well for domestic utilization through the summer. European storage drew by 146 Bcf versus norms of 108 Bcf, despite Russian imports hitting an annual high of 17.6 Bcf/d, according to analysts.
“The big draw comes thanks to strong weather demand, as the sample of countries we track, representing around 75% of total European demand, are up 17% year/year to start December,” the TPH team said.
Although forecasts showed a “material” warming trend across Europe over the coming week, a slew of operational and logistical issues in the global LNG market also were supporting the tight European market. The TPH analysts said supply outages are drawing cargoes away from the Atlantic market into the Pacific, and congestion in the Panama Canal was causing shipping delays.
“As a result, the shipping industry is seeing strain as cargoes are being sourced from further afield, facing delays in the canal or opting for one of Magellan’s routes, ultimately resulting in higher day rates and higher landed prices, particularly for Japan Korea Marker,” TPH analysts said.
All of this was good news for current spot prices, according to the firm, but the storage draws in Europe also provide some upside to U.S. LNG demand. TPH said its forecast 2Q2021 and 3Q2021 U.S. LNG utilization of 66% was on track for an upward revision.
Cold Blast Boosts Cash
Spot gas prices were higher across the country Friday, supported by a cold shot forecast to sweep across the Great Lakes and East. Temperatures were expected to plunge overnight into the 10s to 30s, bolstering demand, albeit temporarily.
“It would be more impressive if not for most of the southern half of the country still rather comfortable for mid-December,” NatGasWeather said.
Nevertheless, gains were impressive on the East Coast, particularly in New England. Tenn Zone 6 200L spot gas jumped 30.5 cents to average $2.785 for gas delivered through Monday. Transco Zone 6 non-NY was up 19.0 cents to $2.140.
AccuWeather said the coming cold weather system was “far from set in stone,” but there were early signs that it could tap enough cold air to produce snow across part of the region by the middle of week. One of the ingredients for a potent storm, whether it is likely to trigger a cold rain, snow or a combination, was a high pressure area over southeastern Canada, according to the forecaster.
“This weather system can create a bit of an atmospheric traffic jam and provide fresh cold air for any approaching storms, which tend to slow down and strengthen along the Atlantic coast in this type of weather setup,” said AccuWeather senior meteorologist Alex Sosnowski. “When storms slow down, the risk of heavy precipitation increases.”
Appalachia markets also strengthened, but increases were generally limited to the single-digits. Columbia Gas edged up 7.0 cents to $2.130.
Southeast markets rose between 10.0 and 20.0 cents, while benchmark Henry Hub tacked on 11.0 cents to hit $2.550.
Gains also were capped at around 20.0 cents across the Midcontinent and Midwest, where Chicago Citygate climbed 15.5 cents to $2.420 for the three-day gas delivery. West Coast markets move similarly, with the exception of the SoCal Citygate. Cash prices there tumbled 21.0 cents to $4.330.
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