Coming off a week in which natural gas futures tumbled nearly 30 cents at the front of the curve, the Nymex March contract appears to be trying to find a bottom. The prompt month traded mostly range bound throughout Monday’s session before ultimately settling 4.7 cents higher at $2.457/MMBtu.

Morning Markets Coverage

At A Glance:

  • Heating demand lingers
  • Production levels hold steady
  • Freeport recovery proves uneven

Spot gas prices continued to decline, however, as temperatures moderated significantly following last week’s Arctic blast. NGI’s Spot Gas National Avg. fell 55.0 cents to $2.515.

Predictions from Pennsylvania’s famous groundhog notwithstanding, the latest weather models depict a rather mild pattern for the next couple of weeks that could quickly reverse Monday’s modest gain along the futures curve.

NatGasWeather said the Global Forecast System (GFS) maintained “exceptionally light demand” through Friday, a slight bump this weekend and then back to very light next week. However, the model sees colder temperatures spreading across the United States from Feb. 17-20 that may result in demand rising closer to seasonal levels. Notably, the European data is a little colder than the GFS for this period, which NatGasWeather said is “an important difference in need of monitoring.”

That said, as The Schork Group pointed out, “five days do not a winter make.”

Throughout the winter season so far, that’s all the support bulls have gotten from the weather – a few days of frigid weather here and there, all quickly followed by a stretch of moderate temperatures that quickly drained demand and kept stocks plentiful. Even production cuts related to freeze-offs associated with the most intense polar blasts, including last week’s Winter Storm Mara, have quickly fallen as temperatures rise. On Monday, for example, Lower 48 output was back at around 99 Bcf/d after having slid down to around 96 Bcf/d during the weeklong stretch of bitter cold air.

What impact the most recent storm had on the market is likely to become clearer in the coming days, when the next round of government inventory data is published.

Early estimates for the week ending Feb. 3 were wide ranging on Monday. Projections ranged from a draw of 145 Bcf to as much as 215 Bcf. NGI modeled a 212 Bcf pull.

By comparison, the Energy Information Administration (EIA) recorded a 228 Bcf withdrawal in the comparable week a year ago while the five-year average stands at a 171 Bcf pull.

Although stocks are set to take a meaningful hit in the upcoming storage report, many analysts expect the following few withdrawals to be significantly lighter than normal. NatGasWeather, for example, expects the end result to be surpluses expanding to more than 250 Bcf above the five-year average.

Inventories as of the week ending Jan. 27 stood at 2,583 Bcf, which is 222 Bcf higher than year-earlier levels and 163 Bcf above the five-year average, according to EIA.

How Low Can Gas Go?

Given the robust storage picture and the rapidly approaching spring shoulder season, sub-$2.00 natural gas prices are now clearly in view, according to East Daley Analytics LLC. The firm noted that gas prices already have fallen by 60% this winter, with Henry Hub futures trading under $3.00 through the first half of 2023 and little the market can do to prevent a further decline.

That said, the price cuts aren’t deep enough, East Daley said.

“We see the need for a ‘shock to the system’ to slow production growth,” the East Daley analyst team said.

Even with lower natural gas-directed drilling and lingering pipeline constraints on Permian Basin takeaway, it may take a price shock to force producers to choke back wells and defer completions, according to East Daley.

Of course, it’s not all bad news for bulls, the firm said. Freeport LNG should come back online before the end of March. Once fully operational, the liquefied natural gas export facility would add 2 Bcf/d of demand to the market. Another hot summer could boost power demand as well.

“But we see these events as temporary signals to the market, and could be negative if they incentivize more drilling,” East Daley said.

This begs the question, “how do we realign production growth?” In East Daley’s view, it will take a “dramatic response” from producers in both the Haynesville and Marcellus shales to curb growth. “For natural gas, restoring balance will mean facing the pain of lower prices.”

Northeast Leads Losses

Spot gas prices continued to soften on Monday as balmy weather spread across much of the country.

The biggest discounts were seen in the Northeast, where temperatures in Boston set a record over the weekend for the largest temperature increase over a 36-hour period. After plunging 9 degrees below zero on Saturday morning, the mercury rose to a high of 50 degrees on Sunday.

“Mild conditions are expected to continue for much of this week, not only in the Northeast but parts of the Midwest, Mid-Atlantic and the Southeast as well,” said AccuWeather meteorologist Joseph Bauer.

As for prices, Tenn Zone 6 200L next-day gas tumbled $5.920 from Friday to average $3.935 for Tuesday’s gas day. Prices soared over $200 last week.

Transco Zone 6 non-NY cash was down 1.275 day/day to average $2.045, while in Appalachia, Texas Eastern M-3, Delivery was down $1.745 to $2.100.

Elsewhere across the Lower 48, a low pressure system/cold front was moving across the Plains and Mississippi Valley, which would bring showers and thunderstorms to the region into Wednesday, according to the National Weather Service (NWS). At the same time, moisture from the Gulf of Mexico has begun to return northward ahead of the cold front forecast to move through the Southern Plains on Tuesday. Storms are expected to be strong by late in the day, with a slight risk of excessive rainfall in parts of Arkansas, Oklahoma and Texas, NWS said.

On the pricing front, Panhandle Eastern cash fell 13.0 cents to $1.915, and Ventura dropped 10.0 cents to hit $2.145. Katy spot gas prices were down 23.5 cents to $1.750.

Over on the West Coast, heavy rain was in the forecast for the Pacific Northwest and portions of the Rockies, but temperatures overall were expected to remain seasonable, according to NWS. Highs through Wednesday were forecast in the 30s and 40s for the interior/Great Basin, 40s and 50s for the Pacific Northwest and Northern California, and the 60s and 70s for Southern California and the Desert Southwest.Price action in the region was mixed. In the Rockies, El Paso San Juan jumped 81.0 cents to $2.685, while PG&E Citygate in Northern California dropped 21.0 cents to $4.745.