• Weather outlooks increased the likelihood of robust heating demand
  • LNG export levels gathered new momentum
  • Cash prices climbed for a third straight day

Natural gas futures extended gains on Tuesday, as traders absorbed news of weather forecasts shifting even colder after a similar change in models over the weekend. The weather outlooks increased the likelihood of robust heating demand the rest of January and into early February, fueling futures.

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The February Nymex gas futures contract settled at $2.656 on Tuesday, up 5.4 cents day/day. Both the domestic and European weather models produced forecasts that, if they hold up, could make the coming two weeks colder than the five-year average. On Monday, the prompt month surged 15.6 cents.

March also advanced on Tuesday, rising 3.8 cents to $2.636. March takes over as the prompt month with Thursday’s trading.

Futures caught “a dead of winter skew to the upside,” as Mizuho Securities USA’s director of energy futures Robert Yawger put it.

NGI’s Spot Gas National Avg. posted a third-consecutive gain amid the intensifying winter chill, advancing 12.0 cents on Tuesday to $2.850. A day earlier and last Friday, cash prices rose 9.0 cents each day. 

A deep winter freeze had already settled in across the northern Plains and Midwest by Tuesday. NatGasWeather expected the frigid conditions to expand and generate strong national demand Wednesday through Friday, “as cold air spreads across the northern and eastern U.S.”

Temperatures are expected to warm by the end of the coming weekend, the firm said, but another blast of widespread cold is possible in the first week of February. “What’s now most important is if cold air arriving into the Rockies and Plains Feb. 3-4 can spread eastward Feb. 5-8,” the forecaster added.

Should the cold snap extend into next month, it would mark the longest and most frigid winter freeze of an otherwise benign winter season, according to Wood Mackenzie.

“This winter, from November to January, will be the fourth mildest in the last 30 years and the third mildest in the last 10 years if the forecast for the remainder of January actualizes,” Wood Mackenzie analyst Eric Fell Tuesday. With the current forecast, gas-weighted heating-degree days “will actualize 220 below the prior 30-year and 165 below the prior 10-year averages, respectively,” even after this week’s freeze.

Fell’s estimated degree day totals correspond to around 300-400 Bcf less weather-related demand versus historical norms.

Futures also got a boost from U.S. liquefied natural gas (LNG) momentum. Following weather-induced delays that dropped LNG volumes well below 10 Bcf/d last week, export levels rebounded back above 11 Bcf on Monday, according to NGI data, and remained atop that threshold on Tuesday – near record levels.

Lower 48 dry gas production, meanwhile, hung near 90 Bcf on Tuesday, roughly on par with its average to date in 2021 but down about 3% year/year.

Looking ahead to the U.S. Energy Information Administration’s (EIA) weekly storage report on Thursday, analysts are anticipating a triple-digit withdrawal for the week ended Jan. 22, though not quite as steep as the week before because of milder temperatures.

EIA reported a pull of 187 Bcf from storage for the week ended Jan. 15, the largest decrease of the season. Preliminary results of a Bloomberg survey on Tuesday showed estimates for the Jan. 22 week ranging from pulls of 138 Bcf to 143 Bcf, with a 141 Bcf median.

Cash Cruises

Spot gas prices climbed across the country on Tuesday, with much of the northern United States coping with freezing temperatures. A National Weather Service forecast called for cold air with lows ranging from around zero to the low 30s spreading across much of the eastern half of the Lower 48 Wednesday through Friday.

EBW Analytics Group analysts said the highest heating-degree day totals for this winter are expected on Thursday and Friday this week.

“This could increase natural gas demand 15-20 Bcf/d from recent levels, strengthening cash prices considerably,” the analysts said Tuesday. “The next few days are expected to see some of the coldest, snowiest weather of the year in the northern tier of the U.S., in an area extending from the Plains states to New England.”

Against that backdrop, next-day prices moved higher throughout the nation’s midsection and into swaths of the East.

In Texas, Waha advanced 9.5 cents day/day to average $2.575, while Katy picked up 8.5 cents to $2.625.

Prices rose similarly across the Midwest, with Chicago Citygate ahead 9.5 cents to $2.580 and Defiance up 9.5 cents to $2.530.

Farther east, Columbia Gas in Appalachia gained 10.0 cents to $2.405, while in the Southeast, Dominion Energy Cove Point spiked 22.5 cents to $2.770.

On the pipeline front, Wood Mackenzie noted that, following an extended force majeure caused by an unplanned outage, Algonquin Gas Transmission said late Monday that the Weymouth Compressor Station in Massachusetts was returned to service. Wood Mackenzie said the station would help meet power plant demand in the Northeast.