A divergence in natural gas prices occurred along the forward curve from Jan. 5 through 12, with a relentless stretch of winter weather leading to a recovery in West Coast prices, while springlike conditions on the East Coast sent prices lower there. 

February fixed prices ultimately averaged 65.0 cents higher through the period, while the summer strip (April-October) picked up 6.0 cents and the winter 2023-2024 held steady, NGI’s Forward Look data showed.

A week after finally backing off recent highs, West Coast markets bounced back as the brutal winter conditions that started in December were set to continue for the foreseeable future. The National Weather Service (NWS) said the region continued to be stuck in a storm pattern, with two low pressure systems seen impacting the coast through the weekend.

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Both systems would be accompanied by ample moisture and produce widespread precipitation. The most impactful precipitation is to remain focused along the coasts of Northern California and the Pacific Northwest through late Friday. Precipitation then would expand south on Saturday and east on Sunday.

“Northern California has been hammered with heavy precipitation events over the past couple weeks, and any additional rainfall could pose a threat of flash flooding,” NWS forecasters said.

This weekend, snow was expected in the higher elevations of the West, and heavy mountain snow was possible in parts of the Sierra Nevada and Cascades. Heavy mountain snow also could be possible for the higher peaks of the central and southern Rockies.

Though temperatures are not all that extreme for winter – with highs in the 50s and 60s – the volatile weather pattern this winter has fueled volatility across the West. Aging infrastructure, regular pipeline maintenance that has restricted gas flows, a years-long drought and other issues have all come to a head and led to unprecedented price spikes in the region.

After slipping last week, prices recovered during the Jan. 5-12 period.

Malin February fixed prices climbed $5.010 to reach $18.725/MMBtu, while the summer strip picked up a far more modest 15.0 cents to average $3.620, Forward Look data showed.

The 15-cent climb for the summer months appears to take into account the heavy rains that should lead to a much-improved hydroelectric supply outlook and thus, the potential for storage inventories in the region to be replenished.

Lake Oroville, for example, has a capacity of about 3.5 million acre-feet. Before the series of atmospheric rivers, it was storing less than 1 million acre-feet of water. Since the beginning of December and the arrival of the storms, water levels have risen to more than 1.7 million acre-feet, according to the California Department of Water Resources. Three more forecast storms are expected to raise levels more by 400,000-500,000 acre-feet. 

Low water levels at Lake Oroville in 2021 forced the Edward Hyatt Power Plant to shut down for the first time since it opened in 1967.

Malin winter strip prices commanded a steeper 55.0-cent climb to $6.740, while the Calendar 2024 strip moved up 25.0 cents to $4.720, according to Forward Look.

In Northern California, PG&E Citygate February rose $5.050 through the period to $20.416, and the summer climbed 21.0 cents to $6.250. Winter prices averaged 65.0 cents higher at $8.023, and the Calendar 2024 strip averaged 27.0 cents higher at $6.130.

The hefty premiums for the upcoming winter are a direct reflection of the chaos that has ensued across the West Coast this season. The continued drag on natural gas when spare pipeline space is hard to come by has stoked huge price swings on a daily basis.

On the supply side, it also has resulted in a massive drawdown of storage inventories that never quite recovered from a 51 Bcf reclassification to cushion gas by Pacific Gas & Electric Corp. in the summer of 2021.

On Thursday, the Energy Information Administration (EIA) said Pacific region inventories slipped by 5 Bcf to 160 Bcf. While this is a modest improvement to historical levels, the market has a long way to go before reaching the 206 Bcf year-earlier level and the 235 Bcf five-year average.

Northeast Continues To Slide

The East region also made some noise in the latest EIA storage report. Against a backdrop of mild weather, it added 9 Bcf to stocks. At 700 Bcf, inventories as of Jan. 6 were less than 5% below year-ago levels and only 2 Bcf below the five-year average, according to EIA.

The increase in storage – a rare January occurrence and in the East no less – was largely expected by the market, but was significant nonetheless, according to Enelyst’s Het Shah, managing director of the online energy chat.

“At this point, is winter over?” he asked. “We have sufficient gas to get us through.”

With mostly moderate temperatures expected in the region for the next 12 days or so, inventories are likely to remain elevated as withdrawals should fall short of historicals for this time of year.

The modest winter demand in January and improvement in storage likely drove losses across the Northeast forward curves over the Jan. 5-12 period, particularly in New England.

Algonquin Citygates February fixed prices fell $1.510 during this time to reach $16.012, while the summer strip slipped only 2.0 cents to $3.380, according to Forward Look. Prices for the upcoming winter were down $1.910 to $14.385, while the Calendar 2024 strip averaged 56.0 cents at $8.140.

Smaller losses were seen along the Transcontinental Gas Pipe Line Co. system, though there was a huge disconnect between NY and non-NY prices for February. The prompt month at Transco Zone 6 non-NY slid 5.0 cents to $10.139, while Transco Zone 6 NY fell 2.0 cents to $2.960, Forward Look data showed.

Elsewhere across the Lower 48, February fixed prices ranged mostly from $3.00-6.00 amid the continued span of mild weather. NatGasWeather said Thursday the much warmer-than-normal pattern would continue the next 11 days, keeping heating degree days on a national level well below normal. A minor bump in demand was forecast Friday-Sunday as a weather system tracks into the Southeast, but the overall mild pattern would remain intact.

The ongoing warmth should continue to bode well for storage. In addition to the East, inventories have improved dramatically in the South Central region as well. Stocks there rose a net 27 Bcf for the week ending Jan. 6, which resulted in a nearly 5% surplus to the five-year average.

Total working gas in storage stood at 2,902 Bcf, which is 140 Bcf below year-earlier levels and 40 Bcf below the five-year average.

Notably, Thursday’s longer-range European model showed colder temperatures finally returning in the last full week of January, particularly across the northern United States. Even more, the data shows the cold air sticking around through at least Feb. 15.

“We must give bulls the benefit of the doubt they could have something cooking as long as the weather data doesn’t trend notably warmer for Jan. 24-31, making each new weather model run important ahead of the weekend break,” NatGasWeather said.

The prospects for heightened demand because of the cold was enough to boost Nymex futures on Thursday, albeit only slightly. The February contract settled at $3.695, up 2.4 cents from Wednesday’s close.