Weekly cash prices skidded lower amid solid production and light heating demand across much of the Lower 48.

Inventory data

NGI’s Weekly Spot Gas National Avg. for the Jan. 23-27 period fell 61.0 cents to $4.880.

As the trading week closed, Algonquin Citygate was down 45.5 cents to $3.755, while Kingsgate was off 33.5 cents to $2.960 and SoCal Citygate was down $4.370 to $14.420.

The February Nymex futures contract struggled through most of the week and settled Friday at $3.109/MMBtu, down 2% from the prior week’s finish. February rolled off the board as the prompt month at the end of the week.

Prices were under pressure from the one-two punch of high production and seasonally weak consumption. In addition to benign weather, output held close to 100 Bcf/d during the week, within about 2 Bcf/d of record levels. 

Additionally, the 2.38 Bcf/d Freeport LNG facility, shut since a fire last June, was expected to return to service late in 2022. It has yet to reboot, however, because of regulatory delays. It did win authorities’ approval in recent days to commence the restart process. Yet it remained unclear when it would ramp back to full capacity, leaving the demand for domestic gas that the facility would generate off the table in the heart of winter.

“The combination of high production, Freeport offline” and a “lack of winter supply adequacy risks points to extended downside risks,” said EBW Analytics Group’s Eli Rubin, senior analyst.  

Forecasters, however, anticipated stronger demand in the week ahead. NatGasWeather looked for far-reaching outbreaks of cold air in the final days of January and early next month.

“An impressive cold shot” is expected over the northern and central United States in the week ahead, with lows of -20s to 20s, the firm said. “While production is quite healthy, there should be a few Bcf drop next week due to wellhead freeze-offs.”  

Futures Folly

That noted, the blast of winter is expected to pass by Feb. 6.

Without enduring heating demand, supplies in storage are relatively robust, adding to bearish futures sentiment.

The U.S. Energy Information Administration’s (EIA) Thursday inventory report showed utilities withdrew 91 Bcf of natural gas from storage for the week ended Jan. 20. It followed weak prints each of the two prior weeks.

The results for the Jan. 20 week compared with a five-year average draw of 185 Bcf and a year-earlier pull of 217 Bcf. The decrease lowered inventories to 2,729 Bcf, but it left stocks well above the year-earlier level of 2,622 Bcf and the five-year average of 2,601 Bcf. 

Recent forecast trends “have buoyed the nearer-term outlook,” analysts at Tudor, Pickering, Holt & Co. (TPH) said. But January overall is still on track to generate historically light demand, while production is holding strong and supplies are stout for this point in the season.

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“The damage is largely done to the winter risk-reward setup at this point, in our view, barring a dramatic shift in the outlook for February and March,” the TPH analysts said.

January degree days were on track to come in 15% below the five-year average in the firm’s estimates. February total degree days, meanwhile, were on a pace to come in 1% below the five-year average, according to the firm.

“Weather aside, supply appears to have comfortably recovered from December’s cold snap, with volumes averaging 100.1 Bcf/d month-to-date and highs in the 100.5 Bcf/d range after entering the month below 100 Bcf/d,” the TPH analysts said.

Friday Cash

Cash prices climbed for the first time in three sessions on Friday. While previously hampered by the mild weather and ample supplies, colder weather on the horizon provided a late-week boost.

NGI’s Spot Gas National Avg. rose 83.5 cents to $4.420.

NatGasWeather expects “strong to very strong demand” during the coming week “as frigid air sweeps across the U.S.”

A weather system with subzero lows that was expected to track across the Midwest over the weekend was forecast to spread south and eastward to cover much of the Lower 48 by the start of February. It could send freezing air down to the southern Plains and across the Great Lakes and East Coast.

A separate system was forecast to deliver a messy mix of rain and snow to the West, as well as below-average temperatures, from California to the Rocky Mountains.

“This will provide a short-term upside catalyst” for prices, said Rystad Energy analyst Ade Allen.

Against that backdrop, spot prices on Friday rebounded in the central United States and in the West.

In the nation’s midsection, Chicago Citygate jumped $1.175 day/day to average $3.955, while Southern Star gained $1.795 to $4.410 and Joliet advanced 91.5 cents to $3.655.

Out West, Malin spiked $3.890 to $11.220 and Questar forged ahead $3.385 to $11.035.

As has been the case so far in 2023, however, the cold shots are projected to prove short-lived, with temperatures warming back to moderate levels by the second week of February.

Should freezing weather quickly fade as forecast, Allen said prices could remain under pressure, “as the market works to find an equilibrium between ramping up production and dwindling demand.”