• Slightly improved weather-driven demand and rising spot prices fueled gains
  • Production has generally held steady and near 2020 lows this month
  • Liquefied natural gas demand has proven strong for several weeks

Slightly improved weather-driven demand and rising spot prices fueled a second-straight day of gains for natural gas futures. The December Nymex contract gained 8.2 cents day/day and settled at $3.031/MMBtu on Wednesday. January advanced 7.8 cents to $3.151.

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NGI’s Spot Gas National Avg. climbed 13.5 cents to $2.585, a third consecutive day of gains.

Wednesday’s prompt month momentum built atop an increase of 9.0 cents the previous day after a blast of snow and cold moved into the Upper Midwest, and forecasts for the next few days shifted slightly cooler. Overall, expectations increased for modest national demand improvement this week.

For the second day in row, Bespoke Weather Services projected demand gains, with a few days toward the front half of the 15-day outlook moving closer to normal in terms of temperatures. This is the result of “a couple of upper level troughs swinging through the eastern third of the nation,” the forecaster said.

Bespoke, however, expects continued risks for more warmth late this month and into December, increasing the odds of price declines in coming sessions. “The bearish weather remains the major obstacle for bulls, and we expect that to continue,” the forecaster said. “As it stands right now, we do not have a single day in the forecast that is colder than normal.”

Unseasonably warm conditions last week sparked a six-day slump for December futures that continued through trading Monday this week. In all, the prompt month shed nearly 50 cents over that span, amplifying the importance of weather.

That noted, natural gas production has generally held steady and near 2020 lows this month, while liquefied natural gas (LNG) demand has proven strong for several weeks, leaving winter-driven domestic demand as the only major piece currently missing from the puzzle.

In its latest Short-Term Energy Outlook (STEO) published Tuesday, the U.S. Energy Information Administration (EIA) estimated exports averaged 7.2 Bcf/d in October, up 2.3 Bcf/d from September volumes. That marked the largest month/month increase on record.

EIA said it expects U.S. LNG exports to average 8.5 Bcf/d in November, above pre-pandemic levels, and remain robust into next year. The agency predicted export volumes would average 8.4 Bcf/d in 2021, a 31% year/year increase.

LNG feed gas volumes hovered above 10 Bcf at the start of trading Wednesday.

The coronavirus pandemic, of course, looms as a wildcard for LNG, particularly if new outbreaks in vital export destinations in Asia and Europe lead to prolonged business restrictions to slow the spread of the virus. Germany, France and other countries already this month announced new measures amid a new wave of outbreaks. The virus is also surging anew in the Lower 48.

Pfizer Inc.’s announcement this week of a potential vaccine rollout before year’s end injected a dose of optimism on the pandemic front. But public health officials said it could take several months – well into 2021 — to distribute the shots to enough people to end the pandemic.

“While the vaccine development is a positive signal, it cannot remedy the current surge or the risk of the outbreak worsening as we head into the winter months,” said Raymond James & Associates Inc. Chief Investment Officer Larry Adam.

Natural gas traders are expected to turn next to Friday’s EIA storage report, which covers the week ended Nov. 6. Last year, EIA recorded a 12 Bcf injection for the similar week, and the five-year average is a build of 33 Bcf. The storage data is scheduled for release one day later than normal because of Veterans Day on Wednesday.

Major polls released Wednesday showed a consensus for a slight withdrawal from stockpiles, because of light production and demand early in the covered week before mild temperatures became widespread.

A Bloomberg survey found a median estimate of a 3 Bcf decrease in storage, with estimates ranging from a withdrawal of 12 Bcf to an injection of 5 Bcf. The results of a Wall Street Journal poll ranged from a pull of 12 Bcf to an injection of 10 Bcf and landed at an average decrease of 2 Bcf. NGI’s storage model predicted a 5 Bcf increase.

EIA reported a withdrawal of 36 Bcf for the week ended Oct. 30. It was the first October pull in more than 10 years. Still, EIA said Lower 48 inventories finished that week at 3,919 Bcf, 200 Bcf higher than a year earlier and high enough to keep balance concerns simmering.

Cash Cruises

Spot gas prices climbed higher again Wednesday – following gains each of the two previous days – after colder air pushed into enough regions to drive near-term demand and Tropical Storm Eta lurked as a potential threat to production.

While warm conditions continue to permeate the southern United States and swaths of the East, with highs ranging from the 60s to 80s, chilly rains bore down on parts of the West and snow blanketed the Northern Plains. National Weather Service forecasts said the winter-like conditions would persist for a couple more days in the Upper Midwest, but above-normal conditions would likely continue over a majority of the Lower 48 for much of the rest of November.

Meanwhile, Eta, the latest named storm in a protracted Atlantic hurricane season, had strengthened into a hurricane Wednesday as it approached the Florida coast. It was expected to produce storm surge and flooding as it hovered around western Florida Thursday and Friday, though forecasters mostly predicted only minor impacts to Gulf of Mexico gas production.

Gains in cash prices Wednesday were most pronounced in the Northeast and Appalachia, where prices have been volatile in recent days.

Algonquin Citygate spiked 53.5 cents cents day/day to an average $1.580, while Tenn Zone 6 200L jumped 66.5 cents to $2.075.

Prices at Columbia Gas, meanwhile, rose 31.0 cents to $1.730, and Dominion South advanced 41.0 cents to $1.375.

Elsewhere, SoCal Border Avg. gained 34.0 cents to $3.520, and Dominion Energy Cove Point picked up 27.0 cents to $2.115.

While pricing volatility has permeated spot trading in recent weeks, EIA said in its latest STEO that cash prices at Henry Hub are expected to average $3.42/MMBtu in January on a combination of space heating demand, rising LNG exports and lower production. EIA expects monthly average spot prices to remain above the $3.00 mark through 2021, averaging $3.14 for the year, well above the projected full-year 2020 average of $2.14.