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Weekly Natural Gas Spot Prices Mixed; Futures Find Fresh Momentum
Weekly natural gas cash prices gave up ground amid a late week pullback at Western hubs, though price momentum elsewhere proved strong amid production declines and forecasts for widespread cold in coming days.
NGI’s Weekly Spot Gas National Avg. for the Feb. 28-March 3 period slipped 23.5 cents to $3.535.
Warming conditions from California to the Rocky Mountains opened the door for a Friday sell-off in those regions, with pricing coming down from lofty highs and dragging on the national average.
Across the rest of the country, though, natural gas prices mostly advanced as favorable weather combined with production that slipped 2 Bcf/d during the week.
As the trading week closed, Chicago Citygate was up 32.0 cents to $2.530, while Florida Gas Zone 1 gained 50.5 cents to $2.465 and Houston Ship Channel jumped 69.5 cents to $2.410.
Meanwhile, the April Nymex contract rallied through most of the week – posting gains every session but one. It settled at $3.009/MMBtu to close trading on Friday, up 24.4 cents on the day and ahead 18% from the prior week’s finish.
Forecasters anticipated even stronger demand in the week ahead.
National Weather Service forecasts pointed to below-average temperatures covering large swaths of the Lower 48 from March 8-15, driving seasonally strong heating demand. Northern markets could see stretches of overnight lows around zero degrees, and southern markets could endure lows in the 40s.
Additionally, production dropped below 98 Bcf/d at one point in the past week, off from the 100-101 Bcf/d highs in February and far from the 102 Bcf/d record level reached earlier in the winter. This developed on the heels of a series of recent earnings calls during which exploration and production firms said they would likely scale back drilling this year.
North America LLC’s Steve Blair, senior account executive, said that the Freeport LNG export plant in Texas, forced offline in June following a fire, is in the process of ramping back to full capacity. It already is drawing about 1 Bcf/d from domestic supplies and could pull up to 2.38 Bcf/d when operating at full capacity. He also noted increased levels of gas use over coal in recent weeks.
“Production levels going lower seem to be the final piece of the rally puzzle,” Blair told NGI.
Futures Forge Ahead
The only blip on an otherwise bullish radar screen for Nymex natural gas futures during the past week was Thursday’s Energy Information Administration (EIA) storage report. The agency posted a withdrawal of 81 Bcf natural gas from storage for the week ended Feb. 24, sending futures down a few cents that day.
Prior to the report, NGI modeled a 76 Bcf pull, and major surveys also found expectations for a draw in the 70s Bcf. However, the result proved bearish when compared to the 137 Bcf withdrawal EIA reported for the year-earlier period and the five-year average pull of 134 Bcf.
The withdrawal left underground stocks at 2,114 Bcf, notably above the year-earlier level of 1,663 Bcf and the five-year average of 1,772 Bcf – reminding markets of the relatively benign weather that depleted demand throughout February.
Looking ahead to the next EIA print, analysts are expecting a similarly paltry result. Early draw estimates submitted to Reuters for the week ended March 3 averaged 75 bcf. That compares with a five-year average decline of 101 Bcf.
Following the next EIA report, however, expected colder weather and lighter production levels could further galvanize gas bulls.
EBW Analytics Group’s Eli Rubin, senior analyst, said early-cycle production nominations were “off markedly” in the Haynesville Shale and Permian Basin during the past week. “If sustained, losses could provide another fundamental tailwind for bulls near-term,” he said.
Friday Cash Prices
Spot natural gas prices weakened to finish the trading week, led lower by price corrections in the West as weather shifted from cold to mild in California and the Rocky Mountain region.
NGI’s Spot Gas National Avg. fell 55.0 cents to $3.295 on Friday for weekend through Monday delivery.
SoCal Citygate shed $3.590 day/day to average $8.150 and PG&E Citygate slipped $4.025 to $8.225, though both held in lofty territory when compared to most regions.
In the Rockies, Opal fell $3.920 to $7.285 and Questar lost $3.920 to $6.860.
NatGasWeather said a strong storm would track out of the West and push across the Great Lakes and East over the weekend with rain, snow and colder temperatures. It said lows could range from zero to the 30s in those regions, generating pockets of solid demand.
Another colder pattern will arrive late in the coming week, the firm said, “as frosty lows” from below zero to the 20s cover the northern United States, along with 20s to 40s over southern portions of the country.
“Colder-than-normal temperatures will rule most of the U.S.,” NatGasWeather said.
The firm also noted that forecasts as of Friday favored additional chilly weather systems sweeping across the United States March 17-21, leaving the weather outlook tilted “to the bullish side.”
At the same time, parts of the West – exceptions to the mild weather conditions early in 2023 – could again grapple with relatively cold conditions following multiple rounds of snow and cold rains.
Heavily populated California, in particular, is also struggling with supply challenges that have kept spot prices volatile but generally elevated.
El Paso Natural Gas Pipeline (EPNG) recently returned to full service its Line 2000, which had been shut since an explosion in August 2021. Its return brought on more than 0.5 Bcf/d of pipeline capacity heading west from Arizona to Southern California.
Reduced volumes on the EPNG conduit had forced Southern California utilities to draw heavily from storage to meet demand, driving up prices. The return of Line 2000 was viewed as a vital source of cost relief for customers.
However, Southern California Gas (SoCalGas) in February said a safety-related pressure reduction was necessary on its Line 235. This effectively offset the capacity that the revival of EPNG’s Line 2000 delivered, leaving California supplies precarious and prices high.
SoCalGas’ “short-lived supply relief granted by a newly in-service Line 2000 on EPNG was quickly undercut,” Wood Mackenzie analyst Quinn Schulz said Friday.
SoCal Border Avg. on Friday fell $4.695 to $6.400, though it remained nearly twice as high as the national average.
“Now with pipeline receipt capacity cut,” SoCalGas, or SoCal, “is likely to lean more heavily on its storage this summer, as it did in the previous one. Currently, SoCal’s total inventory sits at 14 Bcf below the past five-year average and is only 3 Bcf above the past five-year minimum,” Schulz said. “Which begs the question: What is likely to happen to SoCal’s relatively anemic inventory levels this injection season? Historical data suggests that SoCal may be heading for depleted inventory entering next winter.”
Over the past five injection seasons, Schulz said, “the average net gain to inventory on SoCal was 29 Bcf and the max net gain was 39 Bcf in 2019…Assuming that SoCal inventory drops only 3 Bcf before April begins,” it will “need to inject a net of 33 Bcf into inventory by the end of October, which would only bring SoCal’s inventory up to the past five-year average levels.”
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