Natural gas futures eked out a gain Wednesday amid worries that a fierce and widespread winter freeze could force production interruptions, ending a three-day run of steep losses. The January Nymex gas futures contract settled at $5.332/MMBtu, up six-tenths of a cent day/day. February rose 2.2 cents to $5.238.

At A Glance:

  • Prompt month gains six-tenths of a cent
  • Harsh weather could stall production
  • Analysts see storage pull in 80s-90s Bcf

NGI’s Spot Gas National Avg. surged $6.960 to $16.065, as bitter cold enveloped the West and the nation’s midsection.

Natural gas production on Wednesday held around 99 Bcf/d. But with subzero temperatures in the Midwest expected to also canvas the East Thursday and Friday, and with freezing temperatures projected for as far South as Texas late in the week, analysts said wellhead freeze-offs and production cuts were likely.

The final days of this week will bring “one of the coldest outbreaks of the winter” to date, with a “dangerous Arctic blast” delivering frigid temperatures to the Rockies and Plains and down into Texas, according to NatGasWeather. “With a hard freeze over production areas, flows are expected to drop by several Bcf to near 95 Bcf/d, if not lower.”

In addition to blizzard conditions in the Midwest and freezing rains in parts of the Northeast, “subfreezing air is also expected into the South and Southeast, as well as the potential for rare snowfall,” the firm added.

Futures markets had faltered the three prior days on forecasts for mild weather near the end of December and to start 2023. But the intensity and breadth of this week’s winter weather tilted markets in bulls’ favor for at least one day.

The “looming” demand collapse to start 2023 suggests another leg lower could occur after near-term cold fades and February becomes the front-month contract next week,” said EBW Analytics Group’s Eli Rubin, senior analyst. In the immediate term, however, “freeze-off risks over Christmas weekend – with January options expiration and final settlement early next week – could help reinforce support for Nymex gas prices.”

Weather in Texas, in particular, could wreak havoc this week, though analysts said it is not likely to rival February 2021’s Winter Storm Uri.

“We do not expect a repeat of Uri’s production impacts and associated outages of gas-fired power plants” in the Southwest Power Pool and Electric Reliability Council of Texas territories, Wood Mackenzie analysts Colette Breshears and Eric Fell said Wednesday. “This is partially due to weatherization effects” – following infrastructure improvements — and “partially from the nature of the storm (this year promises to be extremely cold, yet dry and fast to pass through).”

The arrival of the deep freeze over a holiday weekend, when demand is often “suppressed” versus norms, could also partly help to mitigate impacts, the analysts added. “Being December, storage levels are much higher and LNG facilities are on standby to shed demand should conditions warrant.”

The futures market on Thursday will focus on the U.S. Energy Information Administration’s (EIA) inventory report for the week ended Dec. 16. Analysts are anticipating a withdrawal from storage in the high 80s Bcf to low 90s Bcf.

A Bloomberg survey Wednesday found withdrawal estimates ranging from 80 Bcf to 96 Bcf, with a median 89 Bcf decline in stocks anticipated. A Reuters poll found projections spanning from pulls of 80 Bcf to 110 Bcf, and a median decrease of 94 Bcf.   

NGI modeled a pull of 83 Bcf. The five-year average is a 124 Bcf withdrawal.

EIA most recently posted a 50 Bcf reduction in natural gas storage for the week ended Dec. 9. The result lowered inventories to 3,412 Bcf and left underground supplies near the year-earlier level of 3,430 Bcf and the five-year average of 3,427 Bcf.

Physical Price Power

Cash prices cruised higher on Wednesday as temperatures dropped.

NatGasWeather said the “strong Arctic Blast will sweep across the U.S. the next several days with rain, snow, and very cold lows of -20s to 20s over the northern U.S. and 0s to 30s” in the South. It predicted robust natural gas heating demand through the weekend and to start the week ahead.

The cold started in the West and spread to the east. Prices soared on the West Coast and through the Rockies on Wednesday.

Northwest Sumas jumped $25.040 day/day to average $50.330, while Malin spiked $30.760 to $55.380 and SoCal Citygate gained $20.930 to $48.740.

In the Midwest, Chicago Citygate advanced $12.285 to $17.690.

In Texas, Space City Weather meteorologist Eric Berger said freezing conditions were expected over much of the state, including Houston, by Thursday night.

“Winds will be very gusty, out of the north at up to 35 mph. This will make for extremely unpleasant conditions outside Thursday night and Friday morning, when apparent temperatures drop into the single digits,” he said. Friday will be sunny, but still “very cold with a stiff northerly breeze. Highs likely will briefly climb above freezing during the daytime for most of the region, but we can expect another very cold night, with lows only 2 to 5 degrees warmer than Thursday night.”

Houston Ship Channel climbed $1.700 on Wednesday to $5.815.

Looking farther out, from Dec. 28 to Jan. 4, NatGasWeather sees a dramatic shift. It expects warmer-than-normal temperatures will spread across the country, from west to east, with highs of 30s to 50s over the northern United States and “very nice 60s and 70s across the southern U.S.”