Natural gas futures stumbled for a second session Tuesday as warm November forecasts kept hopes of higher winter heating demand at bay. The December Nymex natural gas futures contract fell 12.4 cents day/day to settle at $3.140/MMBtu. January fell 10.1 cents to $3.463.
NGI’s Spot Gas National Avg. fell 12.5 cents to $1.790, its sixth consecutive decline, with SoCal Citygate pricing continuing its recent streak of volatility.
SoCal Citygate led decliners, dropping $1.075 day/day to average $7.205, The move follows a jump of $2.290 on Monday and a dump of $1.540 on Friday.
SoCal’s continued volatility and price premium have some of its buyers puzzled because they come as Southern California Gas Co. (SoCalGas) topped up its storage and issued Operational Flow Orders (OFO) because its system has too much gas to maintain balance.
SoCalGas has increased its core gas storage to the top of its five-year range after injecting about 1.59 Bcf/week from Apr. 13 through Oct. 26, according to NGI analysis of SoCalGas data. The most recent report showed SoCal withdrew 0.23 Bcf last week, with storage levels a little over 1 Bcf below the three-year high of 79.47 Bcf reached in Sept. 2022.
“Their system is so packed they have no place to park this oversupply, and we end up paying a premium?” an industrial user in Southern California said. “How am I paying $8 at the citygate in the LA basin, and 400 miles to the east at the border, it’s under two bucks?”
SoCal Border Avg. averaged $1.725 Tuesday, down 22.0 cents day/day.
SoCalGas has issued OFOs in 65 out of 68 days since Sept. 1, the end user said, noting years ago this was a once-a-year occurrence. “And now it's almost a joke every day. They've got too much gas. If you've got more supply coming in than you can handle, how do you explain the highest price in the country?”
Still Early For Winter’s Path
A warm bout of weather will dominate the Lower 48 over the next two weeks, with temperatures so above normal that one model’s colder shift overnight was no surprise since “statistically it couldn't be much warmer,” NatGasWeather said.
Near term, most of the country could see comfortable highs in the 50s to 80s through Thursday, before cooler air pushes as far south as Texas to lift national demand toward seasonal levels over the weekend, the firm said. But further out, most weather models show “little to no hope of colder weather through the third week of November, at least,” the firm added.
The mild November weather coupled with a jump in gas production over the weekend that “reinforced confidence in ample supply” have been the main factors behind the prompt month’s sell-off, EBW Analytics Group’s Eli Rubin, senior analyst, said.
If El Niño conditions lead to above-average warmth in December, and with the surplus of gas in storage nearing 280 Bcf, “Nymex winter risk premiums may have further to fall over the next 30-45 days,” according to Rubin.
In addition, “the weekend surge in dry gas supply is undervalued by the market, with the seven-day average surging 2.75 Bcf/d in less than two-and-a-half months,” he said. That jump in output could add more than 80 Bcf of gas per month that the market needs to absorb, he said.
Analysts at Goldman Sachs Commodities Research echoed that bearish leaning on Friday with a base case for an oversupplied gas market in 2024 if the winter comes in as average. And even if the winter is one standard deviation colder — or 2 degrees colder than average to boost natural gas demand by 550 Bcf — balances would still be comfortable ahead of winter, the analysts said.
Still, they point out that the path that winter could take is still wide. The difference between the coldest and warmest winters over the past 10 years is a swing of 960 gas demand-weighted heating degree days and temperatures 6 degrees colder on average for the season. They estimate based on realized temperature-driven demand swings that this equates to a 1.8 Tcf net impact on storage.
Goldman said it only incorporates two-week weather forecasts in its estimates as “we typically find long-term weather forecasts unreliable” which keeps so many scenarios for the season on the table. Therefore, prices are “unable to fully shed the winter risk premium early on in November/December” as markets do not know the outcome for winter.
Indeed, Mobius Risk Group analysts said the latest weekend culling of demand forecasts in weather models “has many singing the El Niño battle cry.”
But they added, it should be noted that two of the warmest Novembers over the past 75 years were also El Niño years, and while one was materially warmer than normal (2015-2016), the other was materially colder than normal (2009-2010).
“In summary, the jury is still out on winter weather,” the analysts concluded.
Cash Prices Cruise
Spot natural gas prices extended their slide to a sixth session, as gas demand nose-dived across most regions amid relatively balmy weather for November.
Prices generally fell across most of Texas, the Midwest, Southeast and California. Prices were mixed in the Rockies. Chicago Citygate slid 9.0 cents day/day to average $1.750.
West Texas prices stayed at depressed levels amid pipeline outages. Transwestern flipped negative, dropping 4.5 cents to average at a cash price of -4.5 cents. El Paso Permian rose 4.5 cents to 12.0 cents.
Prices rose in the Northeast and Appalachia, which have not been spared colder temperatures this week.
Icy conditions will cut across northern New York and into New England on Wednesday into Thursday, AccuWeather Senior Meteorologist Adam Douty said. “Only a relatively small amount of snow and ice is expected” but for some areas “it will be the first of the season,” he said.
Algonquin Citygate rose 30.5 cents to average $2.000.
Wood Mackenzie estimated Northeast production fell around 1.1 Bcf/d for Tuesday, including around 925 MMcf/d in Pennsylvania.
Southwestern Pennsylvania volumes showed a roughly 580 MMcf/d decline associated with “a single gathering system interconnect” on Tetco (aka Texas Eastern Transmission Co.),” Wood Mackenzie analyst Laura Munder said.
Northeastern Pennsylvania production showed a roughly 345 MMcf/d decline, including lower volumes on Transco (aka Transcontinental Gas Pipe Line).
Overall, natural gas production on Tuesday dropped to 102.5 Bcf/d, but Munder noted “it is not unusual to see bigger declines on Tuesdays that are revised up in later cycles due to scheduling practices.”
In Appalachia, Tenn Zone 4 200L rose 12.5 cents to $1.770.
