Natural gas prices spiked in December bidweek trading as markets absorbed the demand impacts of cold wintry blasts that permeated the West, central United States and parts of the East. Early snowstorms and freezing conditions propelled heating demand and interrupted production, buttressing prices.
NGI’s December Bidweek National Avg. spiked $3.445 month/month to $8.395/MMBtu. That far exceeded the $5.890 average for the year-earlier period.
Several demand hubs in the West and the nation’s midsection, where freezing low temperatures were widespread over the final days of November, fueled the overall increase.
Among myriad other hubs reporting outsized gains in the West, Malin jumped $7.805 to average $13.725, while Northwest Sumas soared $8.970 to $15.085 and Opal forged $5.630 higher to $11.380.
Northeast prices were even stronger. Algonquin Citygate surged $17.070 to $23.480, while Iroquois Zone 2 advanced $12.380 to $18.230.
In the Midwest, gains were less pronounced but still robust by historical standards. Chicago Citygate climbed $2.055 to $7.000, and Lebanon climbed $1.800 to $6.410.
The latest round of bidweek trading spanned the business days between Nov. 22-28. In that period, bullish weather and forecasts for more in December powered prices forward. Chilly rains washed over the Northwest, while freezing air and snow blanketed the Mountain West and Midwest, ushering in lows in the teens and 20s.
“Residential and commercial demand has increased significantly,” Rystad Energy analyst Ade Allen said.
The recent wintry mix not only got furnaces firing, he added, but also caused wellhead freeze-offs in areas of the Mountain West, Plains and the East.
Production, which hovered near a record level of 102 Bcf/d at times in November, dipped to around 99 Bcf/d at one point during bidweek amid interruptions imposed by the cold.
Futures Uncertainty
The December Nymex natural gas futures contract rolled off the board with a loss on the final day of bidweek, culminating a choppy final few days of trading. While weather powered cash prices late last month, traders mulled an abundance of factors that continue to influence futures early in December.
News of a potential railroad strike that emerged last month created a fresh bullish undercurrent for natural gas prices because, barring a labor agreement between management and unions by Dec. 8, a railway worker walkout could follow. This would disrupt coal deliveries and drive demand for gas as a substitute, as EBW Analytics senior analyst Eli Rubin noted.
However, under pressure from President Biden, the U.S. House on Wednesday passed legislation that would require a tentative rail labor agreement and block a walkout. The Senate passed the bill Thursday, and it was headed to President Biden for his signature.
The January futures contract debuted as the front month on Tuesday of this week with a gain, but it fell Wednesday along with news of the bill to avert a strike. The prompt month lost more ground Thursday, sliding 19.2 cents day/day and settling at $6.738/MMBtu.
Should lawmakers’ intervention hit a snag, however, labor unions appear ready to strike beginning Dec. 9, Rubin said, potentially halting shipments and renewing “increased upward pressure on natural gas demand and prices.”
Additionally, markets await certainty on the return of the Freeport LNG export plant in Texas. After it was closed in June because of damage caused by a fire, the facility’s management had hoped to finalize repairs in November. They now are targeting mid-December to begin bringing operations back online. If successful – the company still needs regulators’ approval -- Freeport could boost liquefied natural gas capacity by up to 2.0 Bcf/d in a matter of weeks.
This would bolster U.S. exporters’ overall ability to meet robust European demand for LNG as countries across the continent endeavor to distance themselves from Russian energy after the Kremlin’s invasion of Ukraine earlier this year.
What’s more, Russia’s Gazprom PJSC, which once supplied about 40% of Europe’s gas imports and has already throttled that back to less than 10% since the war started in February, threatened further cuts last week.
This could add to demand for U.S. LNG, Allen said, and eat into domestic supplies just as storage withdrawal season is getting underway.
Storage, Weather Outlook
The U.S. Energy Information Administration (EIA) last week printed a pull of 80 Bcf natural gas from storage for the period ended Nov. 18. It easily eclipsed historic averages and marked the first withdrawal of the season. EIA on Thursday followed up with another larger-than-normal draw of 81 Bcf for the week ended Nov. 25.
The pull proved notably larger than both last year’s 54 Bcf decrease and the 34 Bcf five-year average withdrawal. It lowered inventories to 3,483 Bcf, which put stocks 89 Bcf below the comparable week of 2021 and 86 Bcf below the five-year average, according to EIA.
Still, for all the bullish price drivers, traders are somewhat dubious this week, in part because they await the rail strike outcome and Freeport LNG’s actual return to service.
“Should this restart timeline be verified, it would provide bullish sentiment and an upward trajectory for prices,” Allen said of Freeport. However, he added, “market hawks remain skeptical” because “facility construction and rehabilitation have been slowed by regulatory hurdles that make estimating a restart timeline nearly impossible.”
Looking ahead, markets will of course focus on forecasts and whether notable shifts toward sustained winter weather bear out.
As of Thursday, the outlook was mixed.
NatGasWeather noted the frosty conditions across much of the Lower 48 on Thursday were expected to hang around Friday to drive heating needs and physical prices.
“However, a warmer pattern will return across the southern and eastern U.S. this weekend into early next week, with highs of 50s to 70s for lighter national demand,” the firm said.
By late next week, fresh cold shots are expected to pepper the northern half of the country, delivering freezing overnight lows and snow, NatGasWeather said.
The southern half of the Lower 48, in contrast, “will be mild to nice,” the forecaster added.
