Natural gas futures sank Monday as warmer forecasts and rebounding production volumes weighed on outlooks, with the February contract volatile on its last trading day.
At A Glance:
- NGI models 190 Bcf draw
- Southeast bucks warm trend
- Production recovery continues
The February Nymex gas futures contract dropped 22.2 cents day/day to settle at $2.490/MMBtu. The March contract, which takes over as the prompt month Tuesday, fell 12.1 cents to $2.054.
NGI’s Spot Gas National Avg. rose 20.0 cents to $2.620. Gains were driven by colder weather in the East.
The March contract is already trading at the lowest level for the prompt-month price series since April 2023. It is also not too far off from a three-year low of 1.944 reached in March 2023, Mizuho Securities’ energy futures director Robert Yawger said.
“Getting uglier in the natural gas market by the minute,” Yawger said.
EBW Analytics Group analyst Eli Rubin said technical support at $2.08-2.09 could mitigate downside risk, but agreed that outlooks for gas prices remain bearish.
The analyst noted fundamentals weighing on outlooks including weaker heating demand expectations into mid-February, signs of production fully recovering from this month’s freeze-offs and news of a month-plus outage for one of the three trains at Freeport LNG’s Texas export terminal, the analyst said.
NatGasWeather said the American weather model shed 32 heating degree days (HDD) into Monday, including an eight to nine HDDs shed in midday model runs. Meanwhile, the European model “one upped it” and lost 44 HDDs in the 24 hours to Monday afternoon, the firm said. Much of the demand cuts were for the first week of February, the firm said.
Lower 48 production hit 106.0 Bcf/d Sunday, within striking distance of all-time highs, Wood Mackenzie estimated. Monday production was estimated at 105.7 Bcf/d.
Rubin had warned it could take weeks or longer for gas output to regain its last 1-2 Bcf/d of losses, but on Monday said it appeared output has recovered “effectively the entirety of freeze-off losses.”
Storage Outlook
The U.S. Energy Information Administration (EIA) on Thursday is scheduled to release Lower 48 working gas in storage data for the week ended Jan. 26. In this period, winter’s cold moderated after the season’s toughest freeze yet. But with enough winter still present in the week, it is expected to drive a slightly larger-than-normal draw.
NGI has modeled a 190 Bcf withdrawal for the period. Early estimates submitted to Reuters ranged between withdrawals of 105 Bcf to 226 Bcf, with an average decrease of 180 Bcf. The estimates compare with a withdrawal of 141 Bcf a year earlier and a five-year average decrease of 185 Bcf.
Tudor, Pickering, Holt & Co. analyst Matt Portillo said they estimate demand for the week was 168 HDDs, or 35 HDDs below the five-year average. While residential and commercial heating demand fell significantly week/week, Portillo said they estimate the gas power burn remained elevated as wind generation fell and gas regained share of the thermal stack, trending back toward around 67%.
Thursday’s print will follow in the shadow of the previous week’s print, a massive 326 Bcf withdrawal that was the third highest on record. Still, if Thursday’s data meets expectations, it would be the fourth consecutive triple-digit draw. Combined, the four pulls would exceed 800 Bcf drawn from inventories — or about 40% of a typical winter’s withdrawal glidepath down.
The last three draws cut the surplus of inventories to 110 Bcf from a peak of 585 Bcf in late December against year-ago levels. However, milder weather in February risks sending surpluses back above 300 Bcf.
Pipeline Happenings
Maintenance on the El Paso Natural Gas (EPNG) pipeline was expected to constrain gas flows in Arizona and West Texas starting Monday and lasting until varied completion times in early February. The work was expected to affect capacity through the Oracle station and flow points “North ML” and “WNKEast”.
In an update Monday, Wood Mackenzie analyst Kara Ozgen said throughput capacity at the Oracle station was being affected slightly less than anticipated at around a 90,000 MMBtu reduction. This constraint was expected to remain until Feb. 5.
Elsewhere on EPNG, remediation of the L1200 pipeline from Hackberry to Franconia until Feb 11 was expected to reduce operational capacity through the “North ML” flow point with varied restrictions, Ozgen said. Existing maintenance had already reduced flows, but based on recent flow data, the operational capacity already dropped by around 153,000 MMBtu/d Jan. 27 and showed no significant slowdown on Monday, Ozgen said.
Impacts at EPNG’s “WNKEast” location also were slightly less than anticipated at around a 91,000 MMBtu/d drop day/day Monday. Work that EPNG refers to as “Line 2000 MOP Reduction” maintenance was scheduled to run until Feb. 6 and fully restrict flows, which Ozgen said could be as much as 118,912 MMBtu/d, although flows had been lower than that recently.
Elsewhere, a return of colder weather in the South led several pipelines to issue operational flow order (OFO) limits. Tennessee Gas Pipeline Company (TGP) issued an OFO for Zones L and 1 on the 500 Line in Louisiana and Mississippi starting Monday until further notice, Wood Mackenzie analyst Kevin Ong said. In addition, Southern Natural Gas Co. (Sonat), Destin Pipeline Co. and AlaTenn Gas Pipeline also declared OFOs for Monday because of the colder weather. Sonat’s OFO affects segments east of TGP limits, while AlaTenn and Destin issued OFOs for their entire pipelines, Ong said.
Stepping back, gas demand in the Southeast rebounded back above 11 Bcf/d Monday after falling to a seasonal low of 8.6 Bcf/d on Friday, Criterion Research’s vice president James Bevan said on the online platform Enelyst.
With the higher demand, South Central gas flows into the Southeast rose more than 2.3 Bcf/d since Friday to above 10 Bcf/d, Bevan said. The increase was split between the Sonat and Transcontinental Gas Pipe Line Co. LLC (Transco) systems, with Sonat sending more than 2.6 Bcf/d into the Southeast, according to Bevan.
TGP also issued an OFO in the Northeast Monday for seasonally cold weather “aimed mainly at receipt points to ensure that there is enough supply to meet demand,” Ong said. The OFO, effective Monday, was for areas east of Station 245 on the 200 Line and all areas east of Station 321 on the 300 Line, Ong said.
Spot Trades Mixed
Physical spot prices traded mixed Monday. Colder-than-normal temperatures drove gains in the Southeast, while unseasonably balmy weather weighed on prices in the West.
The National Weather Service said temperatures would be “closer to or a bit below average” in the Southeast and northward along the East Coast, with the region slower to moderate after a cold front. Forecasted highs ranged from the 20s to 30s in New England, 30 to 40s in the Mid-Atlantic and 50s to 60s in the Southeast and Florida, the forecaster said.
In contrast, the rest of the country was expected to trend 10-20 degrees above average into Wednesday, especially the Northern and Central Plains and Upper Midwest where highs could be as much as 20-30 degrees above average, according to NWS.
The Southeast’s Transco Zone 5 rose 38.0 cents day/day to average $2.945 for a broad area from the Carolinas to Virginia. The benchmark Henry Hub in Louisiana rose 5.5 cents to $2.435.
Meanwhile, more typical chilly conditions boosted prices in the Northeast. Algonquin Citygate soared $4.065 to $8.665.
At the other end of the spectrum, Malin in northern California fell 52.5 cents to $2.285. Northwest Sumas in the Rocky Mountains fell 69.5 cents to $1.960.
