Natural gas futures sank below $3.000/MMBtu on Tuesday as markets looked past the immediate brutal cold to an expected warm-up in temperatures next week as indicated by increased confidence in weather models.
At A Glance:
- Brutal cold to last into weekend
- Production drops to 92.4 Bcf/d
- NGI models 165 Bcf draw
The February Nymex natural gas futures contract fell 41.3 cents day/day to settle at $2.900. The prompt-month held above the $3.000 level in overnight trade before plunging in the morning. The contract fell lower in the afternoon after a mid-day bounce failed to retake the $3.000 level.
NGI’s Spot Gas National Avg. fell $10.550 to $6.220, with prices lower in all regions except the Northeast, with its system showing strain amid high heating demand.
The sell-off in futures came amid bone-chilling temperatures that sent demand for gas and electricity spiking across much of the country. Lower 48 gas demand on Sunday through Tuesday hovered around 160 Bcf/d, including LNG and Mexico exports. This was up around 30 Bcf/d from the recent 30-day average, Wood Mackenzie estimated.
The colder temperatures led to production freeze offs that cut Lower 48 gas supply to a low of 92.4 Bcf/d on Monday, well off the pace above 106 Bcf/d at the start of 2024. Output remained low at 94.6 Bcf/d on Tuesday, the firm estimated.
At the same time, associated gas production from the Bakken Shale was estimated to be down 1.6-1.8 Bcf/d, according to North Dakota Pipeline Authority Director Justin J Kringstad.
Temperatures are starting to warm up in the region, and production recovery efforts are underway, he told NGI. “I anticipate that the majority of lost production will be back online within the next four to seven days, with a smaller percentage taking longer if equipment requires any intervention.”
Canadian volumes on the Northern Border Pipeline have increased over the last several days to offset lost Bakken production, according to Kringstad.
Frigid conditions are expected to last through the weekend before warmer-than-normal conditions arrive next week. The expected drop in demand as well as a snapback in supply acted as weights on futures Tuesday.
“What Mother Nature giveth to you she’ll also taketh away,” Snapper Creek Energy analyst Kyle Cooper told NGI. The market’s attention has shifted to “two weeks from today that looks to be much warmer than it was” in earlier weather modeling, he said.
In addition, Cooper said major infrastructure emerged relatively unscathed from the cold freeze, unlike past storms, allowing for a quick rebound to supply. “I would expect we’re back up to over 100 Bcf of production by the end of the week,” he said.
Similarly, Gelber & Associates analysts said the cold’s effect on output over the past few days may have looked “relatively mute” compared to December 2022 freeze-offs. “It is also likely that many were also offsides for the winter’s first major cold spell after an otherwise sluggish withdrawal season,” which drove buyers to pay “overvalued prices” during the run-up last week, the analysts said.
Liquefied natural gas feed gas demand stair-stepped lower over the holiday weekend by about 3 Bcf/d, somewhat cushioning the drop in gas supply in the South Central region. Feed gas flows for U.S. LNG terminals fell from around 15 Bcf on Friday to around 12.2 Bcf Tuesday, according to NGI’s LNG Export Flow Tracker.
Gulf Coast ports said operations were slowed by poor visibility and icy road conditions that reduced availability of tugboat pilots. Some analysts had opined that the weaker LNG volumes were a result of rerouted gas supplies from export terminals to residential areas with higher storm-driven demand.
Power Grid Strain
Gas pipeline networks and electric grids were under strain amid the double whammy of supply cuts and demand spikes.
Texas’ main grid operator ERCOT (aka the Electric Reliability Council of Texas) said it was operating under normal conditions and anticipated enough power for demand, but asked customers to reduce electricity use Tuesday. ERCOT demand set a new record for peak winter demand at 78,138 MW Tuesday morning. Another record high was expected Wednesday, the agency said.
Elsewhere in Texas, AEP Texas customers were among the state’s hardest hit for outages, though outages paled in comparison to prior winter storms. The utility said 11,670 customers (out of roughly 1 million) were without power early Tuesday. Most outages were in San Antonio, where lows were expected to reach around 18 degrees and highs of around 39 degrees.
Oncor Electric Delivery Co. LLC in Austin, Dallas and Fort Worth, reported around 3,000 of its 3.9 million customers were without power on Tuesday.
“We recognize the challenge and frustration of being without power, especially during this winter weather, and are fully engaged in completing restorations as quickly and safely as possible,” Oncor said.
Houston-based CenterPoint Energy Inc. early Tuesday reported a little more than 4,000 customers of its 43,011 customer base without power, mainly in Houston and Galveston.
Power outages were more substantial in the West.
Pacific Gas & Electric Co. (PGE) said it was continuing “full-scale efforts” Tuesday to restore power to customers in California, Idaho and Washington. The utility said less than 33,000 customers were still without power late Tuesday. That’s down from the 40,120 customers without power late Monday. More than 836 distribution power lines, eight transmission lines and five substations also were impacted.
As the Arctic air moved eastward, utilities in the eastern third of the country reported scattered outages.
Pipeline Constraints
The cold put considerable strain on pipeline operators and storage facilities, forcing some to declare force majeure or issue operational flow orders (OFO) to maintain system integrity.
TC Energy Corp.’s ANR Pipeline Co. imposed westbound capacity restrictions on a tie-line in ML7 Monday after an outage at the LaGrange compressor station in Indiana, but by Tuesday morning the force majeure was lifted. Still in place was an OFO ANR issued Friday for its Southwest region for the rest of the month.
Northern Natural Gas Co. (NNG) set a safe operating limit for Tuesday and Wednesday across its system in the Upper Midwest.
Columbia Gas Transmission (TCO) issued OFOs for receipt points in several market areas in effect beginning Saturday. Capacity would be reduced on Line VB near Strasburg, VA, until Monday (Jan. 22).
Carolina Gas Transmission’s OFO declared Tuesday for delivery points Groups 1 to 6 was to remain in effect until further notice.
Meanwhile, a Kinder Morgan Inc. spokesperson said its pipeline system was not experiencing any significant impacts from the winter storm. “We took proactive steps to prepare our assets in advance of the winter storm impacting much of the country this week,” the spokesperson told NGI.
Storage Views
The frigid weather conditions are expected to drive the biggest storage withdrawal of the season by a wide margin for the week ending Jan. 19. NatGasWeather said early withdrawal estimates are likely to range from 260 Bcf to 340 Bcf.
Ahead of that print next week, the market expects a more modest triple-digit withdrawal for the week ended Jan. 12, which would follow a 140 Bcf draw for the first week of 2024 reported by the U.S. Energy Information Administration (EIA) last week.
For the week ended Jan. 12, NGI has modeled a withdrawal of 165 Bcf. Early estimates reported to Reuters for the week ranged from withdrawals of 116 Bcf to 161 Bcf, with an average decrease of 123 Bcf. The estimates compare with a five-year average draw of 126 Bcf and a year-earlier decline of 68 Bcf.
But beyond these two expected triple-digit draws, the next print could be less sizable with weather models pointing to milder conditions.
EBW Analytics Group analyst Eli Rubin said weather models over the weekend slashed 30 heating degree days (HDD) of demand for the next two weeks. If supply fully rebounds, “a sub-100 Bcf draw for late January is possible.”
The “potential for reloading cold into early-mid February needs to be monitored closely,” Rubin said.
Snapper Creek’s Cooper said with winter halfway done, every day that passes makes it more difficult to get the degree of cold required that would undo the supply overhang. But it’s not impossible, he said, noting Winter Storm Uri hit Texas over President’s Day in February 2021.
Spot Prices Drop
Next-day cash prices fell across most regions with the brunt of the cold easing through Thursday before another blast of cold returns over the weekend.
NatGasWeather said “national demand will remain strong to very strong through mid-week,” with lows in the negative 30s to 30s including “hard freezes deep into Texas and the South.”
The forecaster said “a reinforcing cold shot will follow into the U.S.” Friday to Sunday with lows in the negative 10s and 20s over much of the northern and central portions of the country, including more subfreezing temperatures for Texas, the firm said.
Next week, a rapid warm-up in temperatures would send highs back into the 60s and 70s, the firm said.
With these forecasts noted, prices for gas delivery on Wednesday gave back a lot of the gains on Friday, which for most hubs were the strongest gains this winter.
In the Rockies, Cheyenne Hub fell $20.790 day/day to average $4.220.
Chicago Citygate fell $22.060 to $3.755, while elsewhere in the Midwest, Dawn fell $6.780 to $3.050. Katy in East Texas shed $2.355 to $5.255.Prices rose in the Northeast to buck the trend lower. Transco Zone 6 non-NY rose $3.135 to $17.225. So far this winter, the hub had narrowed its spread to the upstream Transco-Leidy Line in Appalachia with additional capacity from the Regional Energy Access (REA) expansion project that came online in October. But Tuesday the differential spiked. Transco-Leidy Line fell $6.735 to $2.620, to put the spread at $14.605.
