Baseload natural gas prices for November were mostly lower as the chances for widespread cold continue to get pushed further down the road, limiting gas demand for heating. Against the backdrop of stout production, vastly improved storage inventories and ongoing LNG export restrictions, NGI’s November Bidweek National Avg. lost 51.0 cents month/month to reach $4.950/MMBtu.
The November bidweek average also is sharply lower than a year ago, when the November 2021 bidweek average was $6.130.
Like last year, weather was a dominant factor during the November natural gas bidweek trading period, with a warmer-than-normal pattern projected through much of the month. Weather models had largely reflected mild temperatures continuing through at least the first half of November, but then began to diverge a bit in recent runs.
Notably, the colder forecast helped propel the December Nymex natural gas futures contract 67.1 cents on Monday to $6.355. By comparison, the November Nymex contract rolled off the board at $5.186, the lowest monthly final settlement since March and the third-lowest of the past 14 months. Henry Hub November bidweek prices, meanwhile, averaged $5.200, a $1.680 decline from the October bidweek average.
The rally ultimately proved to be too fast and furious, though, with Tuesday’s weather model runs tamping down the expected cold pushing down into the Lower 48 from Canada next week. NatGasWeather said the Global Forecast System’s midday run was poised to trend even warmer, with an “exceptionally bearish weather pattern” expected across the eastern half of the country the next 10 days. This includes temperatures remaining as much as 30 degrees warmer than normal as daytime highs reach the 60s to 80s.
The midday data was slightly cooler for the coming weekend, but was warmer for Nov. 9-14, according to NatGasWeather. The warmer trends were primarily because of a strong ridge holding across the eastern United States, preventing cold air over the Rockies from advancing as aggressively eastward.
The outlook continues to favor a stronger push of cold air across the Midwest around Nov. 13-15 for more seasonal national demand, the forecaster said. However, there has been some inconsistency in forecasts that go out more than 12 days, suggesting changes after Nov. 13 should be expected.
Given the lack of clarity on late-November weather, the December Nymex gas contract settled Tuesday at $5.714, erasing all but three cents of Monday’s gain.
Swelling Supply
Meanwhile, production has largely maintained the near-record levels reached in late August despite maintenance activities taking place on several pipelines this autumn.
On Monday, Lower 48 output took a more substantial step down to around 95.9 Bcf/d, but Wood Mackenzie said this was mainly because of first-of-the-month scheduling. It expects significant revisions in Wednesday’s production data.
That said, there is maintenance that began Tuesday on El Paso Natural Gas. The pipeline began a remediation on Line 1300, completely shutting in northbound and southbound capacity through the Caprock compressor station and restricting around 350 MMcf/d of northwestern flows until Nov. 13.
Wood Mackenzie noted that Natural Gas Pipeline Co. of American (NGPL) also was conducting maintenance in East Texas. The NGPL force majeure on Segment 26 is projected to limit operational capacity through Compressor Station 303 by around 260 MMcf/d, restricting flows by 125-200 MMcf/d.
In addition, there is an event on the Rockies Express Pipeline that is impacting flows at the Cheyenne Hub compressor station in the Rockies. That work is scheduled to end on Nov. 8.
The spring and autumn are typical times of year for planned maintenance activities to be carried out and thus, fluctuations in production are common as flows are cut. But by and large, production has risen significantly since the summer, with the increase in supplies helping to pad storage stocks ahead of colder weather this winter.
As of Oct. 21, working gas in storage stood at 3,394 Bcf, which was 142 Bcf below year-earlier levels and 197 Bcf below the five-year average, according to the Energy Information Administration (EIA). Earlier this summer, the deficit to the five-year average was more than 300 Bcf.
Current storage projections suggest four more weekly EIA injections extending into mid-November, including the potential for another triple-digit build in this week’s inventory report. Early estimates suggested stocks could have risen by as much as 118 Bcf for the reference period ending Oct. 28. An average among those estimates landed at a 96 Bcf increase in inventories, which is more than double the five-year average injection of 45 Bcf.
Given the further restocking expected in the coming weeks, the gas market is poised to erase the storage deficit versus the five-year average by Thanksgiving.
“Falling winter supply shortage fears may foreshadow further downside later this winter,” said EBW Analytics Group LLC’s Eli Rubin, senior analyst. “Still, the natural gas market remains structurally susceptible to cold blasts sending prices skyward.”
When Is Freeport Restarting?
Notably, about 2 Bcf/d of gas demand remains on the sidelines, with the return of operations at the Freeport liquefied natural gas facility continuing to cast a cloud of uncertainty on the gas market. Previous commentary from Freeport pointed to an early to mid-November restart of initial operations at the LNG terminal. However, full approval from federal regulators would be needed in order for that to occur.
Market chatter in recent days had centered around a couple of vessels heading toward the facility off the upper Texas coast, but the Pipelines and Hazardous Materials Safety Administration told Bloomberg on Monday that it had not yet received any restart plans from Freeport.
In a statement, Freeport said it continued to “progress our work towards achieving the safe restart of our liquefaction facility this month. That work includes completing the final repair and restoration efforts, completing required work plans and obtaining the necessary regulatory approvals required before safely restarting the facility.”
Meanwhile, a 28-day stretch of planned maintenance ended at the Cove Point LNG export terminal in Maryland on Friday, returning about 740 MMcf/d of feed gas demand to the market. Feed gas demand jumped back to around 12.5 Bcf/d over the weekend, a level not seen since September. However, intake was back down to around 11.2 Bcf/d on Tuesday, according to NGI’s U.S. LNG Export Tracker.
An on-time return to service for Freeport LNG appears “increasingly unlikely every day,” according to EBW. However, this week’s brief rally was significant, especially in response to only a minor bullish shift in the weather forecast.
“If forecasts ultimately turn sharply colder for late November and December, prices could easily rise $1.50-$2.00,” Rubin said.
The gas market also could be impacted by other catalysts. Rubin noted that recent producer earnings reports cast doubt on a seasonal ramp in Appalachian production this winter. In addition, railroad unions still could pose massive disruptions to energy markets. Notably, the market in September was focused on speculative outcomes of a freight railroad strike and the potential impacts of reduced coal supply.
“Still, the end-of-winter storage outlook well above 1.4 Tcf suggests few risks absent extreme winter cold,” Rubin said. “While prices may rise over the 30- to 45-day period, any medium-term gains for natural gas are likely to be returned by mid- to late winter.”
Rallying West Coast
While the vast majority of U.S. locations followed benchmark Henry Hub bidweek prices lower for November, there were a few exceptions.
Though not a complete surprise, New England’s Algonquin Citygate jumped an impressive $1.385 month/month to average $6.410 for November baseload gas. By comparison, other locations in the Northeast posted losses of up to 53.5 cents.
Though a mostly mild weather pattern is expected in the region over the next couple of weeks, local utilities are bracing for tight supplies this winter. Eversource, New England’s largest utility, has requested that President Biden begin preparing emergency measures to avoid a shortage of gas in the Northeast this winter.
A potential regional shortage of gas could be exacerbated by the currently low inventories of heating oil, according to Aegis Hedging Solutions LLC. Heating oil is one of the main sources of winter-time heating in the Northeast.
Eversource requested that the Biden administration consider actions such as using the Defense Production Act or temporarily waiving the Jones Act, which could lower the cost of shipping products from one U.S. port to another.
Separately, EBW pointed out that the 1,200 MW Commonwealth Wind project, a highly anticipated offshore wind project in Massachusetts, warned that global inflation, commodity price spikes and supply chain shortages suggest that the project is “no longer viable” and “unable to move forward” without changes to the underlying power purchase agreement. Further, the warning from project developer Avangrid Renewables LLC has been repeated by the 400 MW Mayflower Wind, collectively putting up to 1.6 GW of capacity at risk.
“New England states have placed a big bet for future winter reliability on offshore wind – with higher capacity factors and a more stable generation profile than onshore wind – as a centerpiece of the energy transition,” Rubin said. “For local natural gas markets, delays to offshore wind development will likely keep New England exposed to global LNG markets and steep winter price spikes well into mid-decade.”
Elsewhere across the country, price increases were spread across the Rockies and California amid an ongoing drought that leaves the West Coast at the mercy of Mother Nature and stands to fuel volatility in gas prices this winter. Snow was in the forecast for the Rocky Mountains to start November, with heavy snow expected in parts of the region through Thursday. Meanwhile, storage inventories still have a little ways to go in closing the gap to the five-year average. Pacific stocks as of Oct. 28 remained nearly 15% below the five-year average, according to EIA.
As for November bidweek prices, Northwest Sumas shot up 60.5 cents month/month to average $6.115, while Opal rose 22.5 cents to $5.750.
In California, Malin picked up 21.0 cents on the month to average $5.920, and the SoCal Citygate tacked on 52.0 cents to $7.270.
