• BREAKING: U.S. EIA reported a withdrawal of 130 Bcf from natural gas storage for the week ended Jan. 1
  • Demand for LNG exports hovered near a record level
  • Production levels declined from a day earlier

Natural gas prices hovered in a narrow range of gains and losses early Wednesday as traders mulled strong demand for U.S. liquefied natural gas (LNG) exports against weakened weather outlooks. But futures held firmly into the green in the afternoon as analysts rolled out forecasts for a substantial withdrawal with Thursday’s government storage report.

EIA storage Jan 1

The February Nymex gas futures contract ultimately settled at $2.716/MMBtu, up 1.4 cents day/day. The prompt month has finished in positive territory each day of 2021 to date. March rose 1.1 cents to $2.684.

NGI’s Spot Gas National Avg., meanwhile, declined 1.0 cent to $2.700.

Mid-range weather outlooks weighed on trading early, as overnight both the European and American weather models shed several heating degree days (HDD) from earlier outlooks. Bespoke Weather Services cited a slower transition to colder weather in the second half of January. 

“It appears we are in a period of above-normal model volatility, as models struggle to resolve the exact configuration on both the Atlantic and Pacific sides of the pattern, along with how much true cold air can get involved,” Bespoke said. “We still lean toward the idea that this pattern ultimately can give us a colder-than-normal week after the middle of the month, which promotes some upside risks in prices, but confidence is lower for now.”

On the positive side, Bespoke noted LNG volumes hovered above 11.0 Bcf on Wednesday, reflecting strong demand for U.S. exports from Asia, where extreme cold has settled over a broad area of the continent. It also noted that production was down about 0.25 Bcf from the prior day. 

Looking ahead to Thursday’s Energy Information Administration (EIA) storage report for the week ended Jan. 1, analysts are expecting a relatively steep withdrawal due to cold weather across swaths of the country that drove solid heating demand.

A Bloomberg survey found estimates ranging from a pull of 124 Bcf to a decrease of 146 Bcf, with a median forecast for a 138 Bcf decline in stockpiles. A Reuters poll found withdrawal estimates spanning from 118 Bcf to 158 Bcf and a median estimate of a 135 Bcf decline. 

A Wall Street Journal poll, meanwhile, landed at an average pull of 137 Bcf, though estimates ranged from a decrease of 119 Bcf to a decline of 158 Bcf. NGI modeled a 135 Bcf withdrawal.

Last year, EIA recorded a 44 Bcf decrease for the comparable year-ago period.

Energy Aspects, meanwhile, estimated a 150 Bcf withdrawal. The firm cited a nearly 15% increase in HDDs for the covered period, driving an estimated 4.8 Bcf/d week/week rise in residential/commercial demand. This was partially offset by a 0.4 Bcf/d week/week holiday-related decline in industrial demand and exports to Mexico.

On the supply side, Energy Aspects estimated production at 91.3 Bcf/d as of year-end 2020, 0.8 Bcf/d higher month/month. However, production as of last week was down 1.0 Bcf/d from recent highs, including a 0.6 Bcf/d week/week drop in output from Appalachia, the firm said.

In its most recent report, EIA revealed a 114 Bcf withdrawal for the week ending Dec. 25. Analysts on average had anticipated a pull in the mid-120s Bcf. Total working gas in storage fell to 3,460 Bcf, which was 251 Bcf above year-ago levels and 206 Bcf above the five-year average.

Meanwhile, markets broadly climbed higher Wednesday — including U.S. stocks and crude oil  prices – following preliminary results of Georgia’s U.S. Senate run-off elections Tuesday. Democrat Raphael Warnock defeated incumbent Republican Kelly Loeffler, according to the Associated Press, while Democrat Jon Ossoff clung to a narrow lead against Republican Sen. David Perdue in the state’s second race as final votes were being tallied late in the trading day.

An Ossoff win would split the Senate 50-50 between the two major parties and swing majority control to the Democrats because Vice President-elect Kamala Harris, a Democrat, would cast tie-breaking votes in the Senate.

Brian Gardner, chief Washington policy analyst at Stifel Financial Corp., said markets embraced the increased likelihood under Democrat control for a new push to issue $2,000 payments to most Americans to help them bridge from the current coronavirus outbreaks to the late spring, when public officials hope to have widely distributed vaccines.

Gardner also noted that, while Democrats are more likely to push for tax hikes and tighter regulations that could adversely affect oil and gas companies, the filibuster remains in place and means Democrats would need 60 votes in the Senate to pass major legislation.

That makes a corporate tax increase or sweeping climate change legislation “long shots” over the next two years, he said.

Cash Prices 

Spot gas prices varied by region against a mixed weather backdrop. 

Weather systems with chilling rains and snow moved into the Northwest and parts of the nation’s midsection Wednesday, boosting heating demand. But much of the rest of the Lower 48 enjoyed highs of 30s to 50s. Parts of the western and southern United States saw highs in the 70s, according to the National Weather Service (NWS).

The weather system dropping snow in the central United States was expected to track farther east, NWS forecasts showed, spreading cooler temperatures to larger swaths of the country by the weekend and increasing the likelihood of more widespread heating demand.

In Texas, El Paso Permian climbed 6.0 cents day/day to average $2.530 and Katy advanced 5.5 cents to $2.675.

In the Midwest, prices were essentially flat at several hubs following gains the prior day. Chicago Citygate, for example, slipped a half-cent to $2.580.

In the Northeast, prices dropped amid mild temperatures, with Algonquin Citygate down 27.0 cents to $2.990.

Out West, SoCal Citygate fell 18.5 cents to $3.705.

Maxar’s Weather Desk said the forecast for next week “features a general warm change, especially during the second half of the period…As the primary flow remains of Pacific origins, above normal temperatures gain in coverage over the course of the period. Much above-normal temperatures accompany a strong ridge and offshore flow in California” late next week.

On the pipeline front, Double E Pipeline LLC this week sought regulatory permission to begin construction on a major new project in Texas and New Mexico. FERC authorized the pipeline in October.

Project backer Summit Midstream Partners LP sanctioned Double E in 2019, aiming to move 1.35 Bcf/d from the Permian Basin’s Delaware sub-basin to the Waha hub in West Texas and beyond via the 135-mile Permian Basin conduit.

Next-day prices at Waha climbed 6.5 cents to $2.520 on Wednesday.