Natural gas futures flew ahead Wednesday, rallying a third consecutive day on festering worries about a railroad strike, expectations for blasts of cold in the month ahead and the first storage withdrawal of the season.
At A Glance:
- Production back below 100 Bcf/d
- Supply risks fading
- West Coast cash strong
Prices also advanced in Europe and Asia over the past week, reflecting Russia-imposed supply concerns and continued strong demand for LNG sent from the United States.
The December Nymex gas futures contract on Wednesday settled at $7.308/MMBtu, up 52.9 cents day/day. January jumped 30.2 cents to $7.708.
NGI’s Spot Gas National Avg. gained 6.5 cents to $6.745.
The U.S. Energy Information Administration (EIA) reported a withdrawal of 80 Bcf natural gas into storage for the week ended Nov. 18. The print proved lighter than market expectations, but it was notably steeper than the five-year average.
“We are clearly well into the heating season now,” Refinitive analyst John Abeln said on the online energy platform Enelyst.
His firm forecast this winter overall will be colder than the 30-year average. It “will be the third La Niña winter in a row, something that has not happened since 2000-01. La Niña winters typically feature cold weather in the Northwest,” which can spread throughout much of the Lower 48.
Prior to the EIA report, major polls found expectations coalescing around a withdrawal in the mid-80s Bcf. The actual result easily exceeded a decline of 14 Bcf in the year-earlier period and a five-year average decrease of 48 Bcf.
The 80 Bcf pull for the latest EIA week lowered inventories to 3,564 Bcf. That compared with 3,626 Bcf a year earlier and the five-year average of 3,603 Bcf.
Looking ahead, analysts expected another bullish print relative to historic norms.
Early estimates for the week ending Nov. 25 submitted to Reuters ranged from withdrawals of 79 Bcf to 119 Bcf, with an average decrease of 103 Bcf. The estimates compare with a decrease of 54 Bcf during the similar week of 2021 and a five-year average decrease of 34 Bcf.
Futures had popped ahead of the EIA report. The print punctuated bullish trends.
EBW Analytics Group senior analyst Eli Rubin attributed the early surge Wednesday to a combination of “increasing early-December cold” and a correlation with strong global prices.
DTN forecasts called for intensifying cold at the national level in coming weeks, he noted. “While the focus of cold” is over the Plains and parts of the West, “Arctic air masses could sweep eastward into mid-December,” Rubin said.
Wintry weather was beginning to canvass Europe and sections of Asia, too, boosting demand for U.S. liquefied natural gas exports. Heading into Wednesday trading, Rubin said, seven-day average LNG feed gas demand had reached a five-month high near 12.2 Bcf/d.
The next LNG catalyst, he added, would likely be the return of Freeport LNG, planned for next month. The Texas export facility, shut down by a June fire, is now targeting a mid-December return and the potential to add about 2.0 Bcf/d to U.S. export capacity by January.
Additionally, Russia in the past week threatened to cut off the remainder of gas exports flowing to Ukraine. This would follow steep cuts of gas delivered via pipeline from Russia to Europe amid the Kremlin’s ongoing invasion of Ukraine. The war has disrupted most of Europe’s energy supplies and amplified the continent’s need for U.S. shipments of LNG.
Rubin called it a “triumvirate of bullish news.”
What’s more, a possible railroad strike next month further bolstered futures. Absent a labor agreement between management and unions by Dec. 8, a railway worker walkout could follow, disrupting coal deliveries and, by extension, creating demand for natural gas as a substitute.
Rystad Energy senior analyst Wei Xiong also sees an abundance of bullish factors driving prices up in the United States and elsewhere, with weather the common theme.
“The three major gas pricing hubs – Europe’s Title Transfer Facility, Asia spot LNG and the U.S. Henry Hub – have seen some upward momentum in recent days ahead of colder weather expected in the northern hemisphere as December approaches,” Xiong said Wednesday. The possible escalation of Russian gas cuts “would exacerbate competition for LNG cargoes,” as well.
Western Cash Strengthens
Spot gas prices on Wednesday advanced across the West, as they did throughout the week, bolstering the national average.
Prices were particularly strong in the Northwest and Rocky Mountain regions to close out cash trading ahead of the Thanksgiving holiday.
National Weather Service (NWS) forecasts pointed to a break in strong national heating demand from Thanksgiving until the end of the month, with highs in the South ranging from the 50s to the 70s and peak temperatures in northern markets generally in the 40s and 50s.
That noted, as December arrives, fresh bouts of cold were expected to form in the West and Plains. This could usher in frigid overnight lows – potentially sub-zero in some areas – and such conditions are expected to extend through the first week of December, according to NWS data.
Most areas of the South and East could see seasonally normal temperatures – and benign conditions – early next month. Still, the cold air in the West is forecast to push east and south by around Dec. 3-5, delivering frosty lows and likely galvanizing strong national heating demand.
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