Weekly natural gas cash prices jumped on a surge in early-season heating demand brought on by frigid temperatures that reached deep into the bottom half of the country.
NGI’s Weekly Spot Gas National Avg. for the four-day Oct. 31-Nov. 3 trading period rose 41.0 cents to $2.800.
A cold shot of weather gave large portions of the Lower 48 its first good taste of winter and could lead to the season’s first withdrawal from gas in storage. Already, storage came in slightly tighter than expectations in the latest report.
The U.S. Energy Information Administration (EIA) reported an injection of 79 Bcf for the week ended Oct. 27. Looking ahead to the next report, early estimates to Reuters range from a withdrawal of 21 Bcf to an injection of 79 Bcf.
Leading gainers on the week were the Northeast, including Algonquin Citygate up $1.190 to $2.580. In West Texas, Northern Natural Gas 1-7 jumped $2.495 to $2.550.
The December Nymex natural gas futures contract, meanwhile, eked out a 3.2-cent gain for the week after falling in three of its five sessions, to settle Friday at $3.515.
Traders have turned their attention to warmer forecasts out to Thanksgiving – and the resulting plunge in heating demand.
Much of the country is expected to warm up this weekend and into the middle of next week before a more limited blast of cold air returns, according to American Global Forecast System (GFS) and the European Centre (EC) weather modeling data. That frosty weather is seen limited to the Midwest and Northeast.
Then there’s another nearly two-week stretch of mild weather forecasted by the models, forestalling hopes of a ramp up in heating demand until late November.
Bullish Storage Build
The EIA’s latest print of a 79 Bcf build kicked off a tug-of-war between bulls and bears over whether the storage trend was in their favor. The prompt month managed day/day gains only briefly Thursday but then spent most of Friday in the green.
The build came in well above the five-year average injection of 57 Bcf, but was just short of the survey medians of 81-82 Bcf. It also was well below last year’s build of 99 Bcf.
Analysts at Wood Mackenzie said the slightly bullish report comes amid an overall trend of a looser injection season. “While this number was technically ‘tight’, it continues to confirm there has been some weather-normal loosening over the last several weeks,” the analysts said.
Adding to the bearish headwinds from weather, production remains elevated and may have notched a new all-time high. Wood Mackenzie revised its Thursday production estimate higher by 2 Bcf/d to 104.2 Bcf/d. Bloomberg also revised its Thursday estimate to 104.8 Bcf, while other vendors were still higher. But the latest estimates got shrugs from some analysts.
Mobius Risk Group pointed out that three of the last four EIA prints have been near the 80 Bcf level, with the Oct. 12 week’s build of 97 Bcf an outlier. Yet the “reported production strength in mid-October would have logically led to looser balances if it were not offset by some component on the demand side,” the firm said. “We have said previously, and still contend, reported production levels may be overstated.”
In the latest storage build, the South Central injection of 32 Bcf led all regions. The Midwest followed with a 25 Bcf injection. The East posted an increase of 17 Bcf, while Mountain region stocks increased by 3 Bcf. Pacific inventories rose by 2 Bcf.
The latest build pushed South Central storage to 1,214 Bcf, 5.2% above the year-ago level and nearly 6% above its five-year average. If the Permian Basin and Haynesville Shale are driving production growth, the build in South Central is underwhelming, market observers on the online energy platform Enelyst said.
“What in the EIA’s South Central numbers gives you all any confidence that we are doing 104-plus Bcf at the national level?” one Enelyst participant said.
Another said EIA data have shown a wider gap to what is implied by industry’s production estimates. “The widening deltas are very recent, so I agree flows to come would shed light.”
Mobius natural gas analyst Zane Curry echoed those concerns.
“How confident can we be where we see production currently, not to mention the growth that many are expecting, is a reliable expectation based on rig count, based on what we’ve seen in the EIA storage data for the South Central,” he told NGI.
Friday Cash Prices
Natural gas cash prices plunged Friday for weekend through Monday delivery on the return of warmer weather across much of the country. After four straight down sessions, NGI’s Spot Gas National Avg. stood at $2.300, down more than a dollar from Monday’s $3.380.
Declines were steepest in California, where SoCal Citygate fell $1.540 day/day to average $5.990 for the Saturday-Monday delivery period.
West Texas prices also fell fast. El Paso Permian fell $1.230 to 63.0 cents, while Transwestern fell $1.330 to average 50.0 cents.
El Paso Natural Gas declared a force majeure Thursday at the Roswell compressor station that began on Friday and was set to last until further notice, Wood Mackenzie analysts said. The outage was expected to reduce pipeline capacity and slightly loosen Waha volumes.
In the Midwest, Chicago Citygate shed 44.5 cents to $2.090. Southern Star in the Midcontinent fell 45.0 cents to $1.950.
Gains were few and scattered across the Northeast, South Louisiana and Appalachia. Tenn Zone 4 200L gained 8.5 cents to $1.795.
The volatility in California’s markets stems from its constrained pipeline capacity. In addition, an inline inspection of Line 4000 would cut in the Northern Zone capacity in the coming days, Wood Mackenzie said. Capacity for the area already has been limited by separate work on Line 235, expected to end Saturday, the firm said.
RBN Energy LLC analyst Sheetal Nasta said Friday that California’s price volatility would continue as long as pipeline capacity stays tight.
“For years now, transportation constraints for moving gas west of the Rockies and reduced gas storage capacity on the West Coast have been driving a wedge between the U.S.’s Western and Eastern gas markets,” she said. “Natural gas transportation constraints and gas supply shortages in the region, particularly California, have made it the highest-priced gas market in the country.”
Capacity cuts at Southern California Gas Aliso Canyon gas storage facility after a leak in 2015 also have contributed, she said.
Some constraints have eased, Nasta said. Most notably, the return to service of the major artery delivering Permian Basin gas supply to California — the Line 2000 segment of El Paso Natural Gas (EPNG) — returned in February after an 18-month outage. However, the state still remains vulnerable.
“We’re likely to see some price blow-outs this winter, during peak demand days, albeit perhaps not to the extent of last winter,” she said.
