Natural gas futures extended their gains for a fourth consecutive session as weather models continue to tease more cold for the end of the month and into January. The January Nymex contract settled Monday at $2.682, up 9.1 cents from Friday’s close. February climbed 7.5 cents to $2.678.
Spot gas prices also rallied at the start of the week as back-to-back weather systems drove up demand in key regions. Driven by multi-dollar gains on the East Coast, NGI’s Spot Gas National Avg. jumped 47.0 cents to $3.035.
After earlier forecasts had all but written off cold weather for December, the recent shifts in the weather data provided a boost to futures. Though models are not in full agreement in the amount of cold seen moving through the country, there at least is some variability in play.
Bespoke Weather Services said the American ensemble data attempts to develop a negative Eastern Pacific Oscillation on the Pacific side, which would signify colder risks heading into the turn of the new year. The European guidance is not reflecting this pattern, but still indicates the outlook is not entirely warm.
“We see the end of the month pattern as quite tricky, as tropical forcing attempts to shift eastward from the West Pacific toward the Central Pacific, but at the same time, we still have the La Niña state, which gives some resistance toward such a move,” Bespoke said.
The Global Forecast System’s midday run didn’t provide much more clarity. NatGasWeather said a chilly pattern held for this week but a mild break was seen over most of the United States during the Dec. 20-23 period. The GFS does show stronger cold shots into the northern and eastern states Dec. 25-26, according to the forecaster, but it has been inconsistent on exactly how that might play out and overall still isn’t exactly frigid with them.
It should be noted that even if the cold blasts do show up, the timing could impact how much demand increases given the expected arrival is right at Christmas. Thanksgiving proved to be a demand crusher, with only 1 Bcf of gas withdrawn from storage during the mild holiday week.
EBW Analytics Group said a pivotal issue facing the market this winter is the impact of remote work and schooling on residential and commercial space heating demand. Though this winter so far has been mostly mild, last week’s storage report suggests that, on a net basis, the increase in residential demand is significantly greater than the potential loss of commercial demand.
“This week’s storage report could shed further light on this issue,” EBW said. “If it confirms last week’s trend and gas-heating degree days continue to increase, natural gas could post significant gains.”
Meanwhile, liquefied natural gas (LNG) hit new highs over the weekend and remained strong at the start of the work week. NGI data showed feed gas deliveries to U.S. terminals sitting near 11.5 Bcf on Monday, with some incremental gains possible in the coming months as Cheniere Energy Inc. continues to bring the third production unit at the Corpus Christi terminal into service.
Unlike the summer when dozens of U.S. gas cargoes were canceled because of a supply overhang and dismal demand, winter demand has been rampant so far. Prices have responded accordingly.
Bloomberg reported that gas prices in northeast Asia soared past $12 on Monday, driven not only by strong demand but supply disruptions in Australia and Qatar. European prices also have risen, though not as dramatically, amid a shortage of LNG vessels and a quick drawdown in storage inventories.
Meanwhile, EBW said that PetroChina International Co. Ltd. and China National Offshore Oil Corp. announced Friday they expect to request bids to supply additional cargoes. A recent tender by Pakistan LNG seeking to buy six cargoes for delivery in January only garnered interest in meeting half of its requirements, “underscoring the tightness of the supply situation in Asia.”
With production holding steady near last week’s levels, and power burns coming in slightly weaker, weather forecasts should dictate a large part of this week’s price action, according to Bespoke. “…Having some risk for cold on the radar could keep bulls in control in the near term, but at some point, we will need to see actual demand being added to continue the rally.”
‘Blockbuster Storm’
Spot gas prices skyrocketed Monday as a pair of winter weather storm systems are set to drive gas demand up across most of the Lower 48 this week.
AccuWeather meteorologists expect the “blockbuster storm” to unfold from Tuesday to Thursday, unloading more than two feet of snow in some areas in the Northeast. Forecasters also expect parts of the interior South to get a thick glaze of ice as a drenching rain is expected to pour down along the lower mid-Atlantic coast.
The combination of heavy snow and gusty winds could create near-blizzard conditions slightly inland of the coast where all or mostly snow falls from the storm, according to AccuWeather. Northern New Jersey and the lower Hudson Valley of New York through southern New England are the most likely zones to experience near-blizzard and whiteout conditions.
“In this area, winds can frequently gust between 40 and 50 mph, dropping the visibility to near-zero at times at the height of the storm Wednesday night into Thursday morning,” said AccuWeather senior meteorologist Alex Sosnowski.
Farther south, AccuWeather meteorologist Jake Sojda said a swath of ice is forecast to cover surfaces in parts of western North Carolina, upstate South Carolina, southwestern and central Virginia and part of central Maryland from Tuesday night to Wednesday.
The bone-chilling outlook sent Northeast cash prices screaming higher on Monday. Iroquois Zone 2 shot up $3.670 to average $6.220. Other New England hubs also averaged more than $6.00, while Transco Zone 6 NY jumped 68.0 cents to $2.815.
Texas Eastern M-3, Delivery posted a similar gain, rising 66.5 cents to $2.705 after the pipeline on Saturday (Dec. 12) declared a force majeure because of an unplanned outage on the 24-inch system Line 1, between French Lick and Seymour, IN. As a result, capacity through Seymour has been reduced to zero.
“Flows through Seymour had only averaged 21 MMcf/d for the two weeks prior to the outage, and as such, this force majeure is not impactful,” said Genscape Inc. analyst Josh Garcia.
Other Appalachia hubs saw gains capped at 40.0 cents.
Southeast spot gas prices were up more than 20.0 cents at several locations, while smaller double-digit increases were seen in Louisiana, the Midwest and Midcontinent.
Most cash prices across Texas were up less than 20.0 cents from Friday’s levels, but Permian Basin hubs posted slightly larger gains. Waha next-day gas climbed 22.5 cents to $2.520.
The stronger Permian gains could be attributed to stronger downstream demand on the West Coast as colder temperatures moved into the Rockies and Desert Southwest. Genscape said system warnings on Kern River Pipeline indicate that line-pack was trending lower than average as system demand is outweighing the pipeline’s ability to maintain its imbalances. Additionally, system-wide operational flow orders in place over the weekend on Southern California Gas remained in effect on Monday as elevated demand continued to impact the pipe.
Overall, the firm said residential/commercial demand at the national level is forecast to come in around 45 Bcf/d this week.
“This Pacific Northwest storm system is to bring with it a large volume of water as snow,” said Genscape analyst Matthew McDowell. “This could bolster Pacific Northwest snowpack numbers which, prior to this, had been average at best in Washington, Oregon and Idaho.”
Snow-water equivalent percentages range from 47-71% of normal for key basins across California, Genscape said. Year-to-date precipitation has averaged 43% of normal prior to these weather systems.
SoCal Citygate cash jumped 69.5 cents to $5.025, while most other California and Rockies hubs climbed less than 50.0 cents.
Overall, the firm said residential/commercial demand at the national level is forecast to come in around 45 Bcf/d this week.
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