Natural gas futures picked up a few cents Thursday after the latest storage data likely gave traders some pause ahead of what is expected to be the most significant cold blast of winter so far. After briefly dipping to $2.269, the November Nymex natural gas futures contract went on to settle at $2.316, up 3.4 cents. December climbed 3.8 cents to $2.465.
Cash prices retreated across the majority of the United States as rather comfortable conditions were seen over the eastern part of the country to close out the week. Although hot weather lingered on the West Coast, preemptive power outages across California helped send the NGI Spot Gas National Avg. down 5.0 cents to $2.005.
With another week or so before the gas market winter season (November-March) gets under way, all eyes have been on weather. Although mostly comfortable temperatures are expected on Friday, weather conditions are expected to turn dramatically cooler beginning this weekend when the strongest cold shot in the coming series is forecast to arrive in the Rockies and Plains, according to NatGasWeather.
The blast is expected to linger in those areas through the early part of next week and then rapidly advance across the southern and eastern United States mid and late next week, the firm said. Temperatures are forecast to be 15-30 degrees colder than normal with this system for much stronger-than-normal national demand.
Although the latest Global Forecast System weather model wasn’t quite as frigid with next week’s cold shot, it did show the chilly air lingering a day or two longer, according to NatGasWeather. What could be more important is that the model, which had been quick to return warmth to the outlook beyond Day 15, still showed Nov. 6-8 to be much milder. Daily heating degree days were seen easing back to near or below normal, “when they need to be much above normal to be considered bullish.”
To be sure, it would take significant sustained cold to flip overwhelmingly bearish market sentiment. Although DTN forecasters call for lingering cold across the Rockies and Plains in Week 4 and an almost identical week/week demand profile from Week 3, returning nuclear units from maintenance outages may slightly dampen total demand for natural gas, according to EBW Analytics Group.
Early projections for an 8 Bcf injection “stand in stark contrast to the year-ago week when blistering cold brought a 134 Bcf withdrawal,” the firm said.
The November Nymex contract has gravitated toward $2.30 all week, but with the contract’s expiration next Tuesday, some volatility could arise in the coming days.
“There’s a lot of speculative shorts that might still need to exit before Tuesday’s November expiration, which could help keep prices supported until then. Not always, of course,” NatGasWeather said.
On Thursday, futures moved higher despite government storage data that was in line with expectations. However, that could be because the Energy Information Administration’s (EIA) reported 87 Bcf build was below the low to mid-90s Bcf injection that market analysts expected last week.
“In addition, many market participants expected this storage week to deliver a triple-digit injection back in late September,” Mobius Risk Group said.
Although weekly injection expectations have fallen and subsequent downward revisions have been made to end-of-season estimates, the market understandably remains apprehensive about buying a curve that has not rewarded “discount” buying in several months, according to Mobius.
Indeed, the latest EIA storage statistic continues to reflect a market that is very loose, especially given the weather that was in place at the time, according to Bespoke Weather Services.
“But more attention will likely be placed on next week’s number as we do appear to have tightened somewhat this week, but in our view, not to a bullish level, barring durable cold.”
Broken down by region, the Midwest added 25 Bcf to storage stocks, and the East added 18 Bcf, according to EIA. Inventories in the Mountain and Pacific regions grew by a combined 4 Bcf, while South Central stocks grew by 41 Bcf, which included a 22 Bcf injection into salt facilities and a 19 Bcf build into nonsalts.
For the second week in a row, the South Central injection was slightly higher than expected. Despite the ramped-up injection pace in the last couple of weeks, regional inventories remain 35 Bcf below the five-year average, EIA data show.
Total working gas in storage as of Oct. 18 stood at 3,606 Bcf, 519 Bcf above year-ago levels and 28 Bcf above the five-year average, according to EIA.
Just days after the Palisades fire ripped through parts of Los Angeles and forced mandatory evacuations, a Diablo and Santa Ana wind event is escalating the fire threat across California for the rest of the week, prompting local utilities to preemptively shut off power to customers in at-risk areas.
By midday local time on Thursday, Southern California Edison had shut power to nearly 27,000 customers across five counties, with another 286,000 customers in six counties under consideration for outages. The utility had community crew vehicles stationed in Ventura, Los Angeles and Kern counties that would be in place through 4 p.m. PT on Friday.
San Diego Gas & Electric Co. had shut off power to about 4,000 customers as of midday Thursday, with another nearly 38,000 under consideration. The utility opened three community resource centers in Descano, Julian and Pine Valley on Thursday, but it was not clear whether they would remain open on Friday.
Pacific Gas & Electric Co. (PG&E) began curtailing power on Wednesday to customers in Sierra foothills counties, although some 190,000 customers were at risk of preemptive power outages. PG&E opened its emergency operations center last Sunday, according to spokesperson Melissa Subbotin.
PG&E’s public safety power shut-offs were to be implemented on a phased basis through Thursday.
“Forecasts call for peak winds to lessen by about noon Thursday in the Sierra Foothills, North Bay and San Mateo. High winds in Kern County are to persist until noon Friday,” Subbotin said.
“Once high winds subside, PG&E will inspect the de-energized lines to ensure they were not damaged during the wind event, and then begin to restore power,” she said. Most customers were expected to be restored within 48 hours after the high-risk weather has passed.
After the preemptive power outages earlier this month, the utility reported more than 100 places where its electrical system was damaged by the winds.
The softer demand stemming from the power outages sent next-day gas prices at SoCal Citygate down 17.0 cents to $3.230.
Over in the Rockies, the latest cold blast sent prices along the El Paso Natural Gas system as much as 21.0 cents higher, although other areas in the region posted steep declines. Northwest Sumas was down 20.5 cents to $2.765.
Losses across the Midwest were capped at about a nickel or so at most pricing hubs, while next-day gas was down 12.0 cents at NGPL Midcontinent, which averaged $1.860.
West Texas prices were among the only on the positive side of the ledger Thursday, with Waha climbing 15.0 cents to average 22.50 cents.
Natural gas prices in Mexico averaged $3.24/MMBtu in September, down from $4.33/MMBtu from September a year ago, according to the IPGN monthly natural gas price index published by the Comisión Reguladora de Energía (CRE).
The IPGN compiles transaction information reported by marketers, and it is meant to serve as a reference until the market attains enough liquidity and transparency for third-party indexes to emerge.
September 2019 was the first month in which prices surpassed $3/MMBtu since May.
Transacted volumes totaled 7.63 Bcf/d, down from 8.07 Bcf/d in August. A total of 25 marketers reported 282 transactions in September.
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