Natural gas traders turned a blind eye to some of the coldest winter weather expected to arrive in days, sending natural gas futures prices plummeting across the country during the January 13-19 trading period, NGI Future Prospects show.
While fixed prices for the February contract reached $2.610/MMBtu in a few New England locations, a sharp drop in base prices was also notable. The region is known for its volatility during the winter – and sometimes in the summer as well – and this week was no different.
Faced with another breath of arctic air, this time more durable, gas demand should remain strong as temperatures were expected to plunge from Thursday evening. AccuWeather said the polar surge will help fuel a snow and ice storm across parts of the South Coast and Atlantic. Friday night through the weekend, the coldest night of the season so far may occur for many inland areas of the southeast. Parts of the northeast interior could experience their coldest night in years.
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By dawn on Saturday, AccuWeather said temperatures were likely to drop below zero over a wide swath of the northeast, from eastern Ohio and western Pennsylvania to much of the north. of New York State and in the mountains of interior New England. For many, it would be the coldest night in at least two years.
“Pittsburgh is expected to dip to near zero Friday night,” AccuWeather meteorologist Jake Sojda said. “If the temperature manages to drop any further, this would be the first reading below freezing since January 31, 2019. In Syracuse, NY, the low temperature is expected to challenge the day’s record of 12 below freezing, set back in 2005. The last time Syracuse dropped below 10 below zero was on January 14, 2018.”
Nevertheless, the bitter outlook was not enough to stave off the widespread sell-off in the Northeast. At Algonquin Citygate, the February base fell $1,920 during the January 13-19 period, but remained at a steep premium of $13,727 to the Henry Hub benchmark. The February fixed price stood at $17.758 on Wednesday; spot prices averaged above $22.00.
Prices further along the Algonquin Curve were much less volatile. The summer (April-October) band fell 9.0 cents to $3,710, while the 2022-2023 winter band fell 11.0 cents to $13,515.
In New York, the Transco Zone 6 NY February basis was down 62.0 cents for the period at $5.009, while the fixed price of $9.04 was down 86.0 cents, according to Look forward. Summer prices averaged 11.0 cents lower at $3,180, and the winter band averaged just 6.0 cents lower at $6,286.
Upstream losses were not as large, with core prices ending the period to January 19 a few cents higher. Eastern Gas South’s February basis climbed 7.0 cents to minus 57.6 cents, while the fixed price slipped 17.0 cents to $3.455, Look forward show. The summer band was down 10.0 cents at $3,000, and the winter 2022-23 was down 8.0 cents at $3,497.
Weakness in US markets certainly does not reflect the current picture of demand given the bitter cold across the country. Instead, it appears traders remain confident that supplies are plentiful enough to meet winter heating needs – even with a series of withdrawals of more than 200 billion cubic feet amid record cold weather.
Is the gas market tight?
That said, the latest inventory overview from the Energy Information Administration (EIA) showed continued tension in the supply/demand balance. The agency reported a monstrous 206 billion cubic feet drawdown from storage for the week ending Jan. 14, much steeper than the market expected.
Prior to the EIA report, estimates ranged widely and as high as 250 billion cubic feet. A Reuters poll of 16 analysts, whose estimates ranged from drawdowns of 153 billion cubic feet to 250 billion cubic feet, yielded a median pull of 196 billion cubic feet. the the wall street journal said its poll found analysts on average expected a drawdown of 201 billion cubic feet.
The median of the 12 shrinkage estimates submitted to Bloomberg produced a median of 197 billion cubic feet and a range of 176 billion cubic feet to 250 billion cubic feet. NGI estimated a shrinkage of 195 billion cubic feet.
Last year, the EIA recorded a pull of 179 billion cubic feet for the same week, while the five-year average is 167 billion cubic feet.
Bespoke Weather Services said the 206 billion cubic foot pull was “a very tight number” in terms of the supply/demand balance. This is largely due to lower production due to freezes, which are expected to be temporary. However, it does point to some stronger numbers to come.
Indeed, early estimates point to more than 200 Bcf withdrawals in the next two EIA reports.
Broken down by region, the South-Central region leads with a withdrawal of 69 billion cubic feet, including strong extraction of 48 billion cubic feet from salt-free facilities and extraction of 22 billion cubic feet from salts, according to the EIA. Stocks in the Midwest fell 65 billion cubic feet, while those in the East fell 61 billion cubic feet. The Mountain region removed 8 billion cubic feet and the Pacific delivered a modest 3 billion cubic feet.
Total working gas in storage as of January 14 was 2.81 trillion cubic feet, 226 billion cubic feet below year-ago levels and 33 billion cubic feet above the five-year average. the EIA said.
Is warmer weather coming?
Meanwhile, the latest weather forecast points to a much warmer February. NatGasWeather said midday data contained an impressive frosty shot over the following days with widespread lows of minus 20 to 30 before a brief break late on Sunday and Monday. Another polar outburst was expected by the middle of next week, but cold air is seen moving over the Rockies and Plains from January 30 to February 3. Temperatures are expected to slowly warm across the southern and eastern United States, paving the way for demand to approach seasonal levels.
“It was this period closer to the 11-15 day season over the southern and eastern United States that led to the disappointment of the last 30 hours,” said NatGasWeather.
Bespoke said February’s warming reflected weather patterns gravitating more toward a trough in the western United States and a downstream ridge in the eastern United States. This would equate to a warmer than normal pattern nationally and is due to the expected return of the more classic base La Niña state, which was halted for most of this month.
“We’re still on pace with the coldest January since 2014, just with less intensity, and more likely to be followed by a warm up in February,” Bespoke said. Still, the forecaster said he remained “a bit surprised at how confident the market was already in this February hotter idea, as we still have large volumes of storage ahead of us.”
Although it agrees with the gradual warming, Bespoke noted that production remains very low, up to 91 billion cubic feet at the start of Thursday.
“Obviously this should bounce back significantly higher once the cold subsides, but exactly how high remains to be seen,” the firm said.
EBW Analytics Group LLC senior analyst Eli Rubin said the length and extent of production freezes remains a critical wildcard. Frosts are subject to the specific geography, duration of cold and extent of grower weatherization, he pointed out.
“The location of the below-normal forecast in Appalachia and strong cold anomalies extending into Texas, however, suggest heightened caution,” Rubin said. “If outages return to earlier-month levels, however, the market could quickly tighten by 15 to 20 billion cubic feet per week.”
Ahead of the upcoming weekend cold snap, Kinder Morgan Inc. issued an El Paso pipeline advisory on Wednesday warning that forecast weather could limit gas flows and lead to supply shortages and outages. current in the Lone Star State.
The surge in demand due to weather conditions follows record export demand. Liquefied natural gas (LNG) feed gas deliveries have reached 13 Bcf/d on several days over the past two weeks. Feed gas hit a record high of 13.2 billion cubic feet per day on Sunday January 16 as the sixth train at Sabine Pass continued to ramp up to full commercial operations.
The near-term bullish backdrop means the gas market could tighten by nearly 10 Bcf/d from the five-year average over the next five weeks, according to EBW. This creates the possibility of significant additional earnings.
“The end-of-March storage trajectory is on track for 1.4 trillion cubic feet, implying sufficient cushion and no current storage adequacy issues,” Rubin said. “Yet huge short-term tightening – and inelastic demand at prices generating the potential for increased volatility – together create the risk that the February Nymex contract will rise sharply over the next seven to 10 days.
On Thursday, however, the February contract settled down sharply, plunging 22.9 cents to $3.802. March fell 19.6 cents to $3.649.