Spooked by the natural gas market’s third-largest storage withdrawal on record that took a huge bite out of the supply surplus, traders sent February baseload prices higher for several U.S. locations on the first day of bidweek trading, according to NGI’s Bidweek Alert (BWA).
Gains were strongest in the West, where California’s SoCal Citygate traded about $1.30 higher month/month at around $5.46/MMBtu, BWA data showed. In the northern part of the state, PG&E Citygate climbed more than $1.20 on the month to $5.520.
Coming off a stout 29 Bcf withdrawal in the Pacific, inventories in the region fell to 228 Bcf as of Jan. 19, leaving stocks a little more than 10% above the five-year average.
Looking ahead, temperatures are expected to moderate in the West, much like the rest of the country. However, AccuWeather said after rain brought San Diego its wettest January day on record last week, forecasts show even more precipitation on the way for the northern part of California and the Pacific Northwest. An atmospheric river could unload more than a foot of rain in some areas by the end of January, according to the forecaster.
“A strong area of high pressure building in the upper levels of the atmosphere will push the storm track well to the north,” said AccuWeather senior meteorologist Heather Zehr. “This will aim it mainly into western parts of Oregon and Washington, as well as British Columbia.”
Meanwhile, Southern California Gas Co. said an unplanned repair would begin Friday on Line 5000. The work, scheduled to last through Feb. 2, would reduce capacity on the line by 650,000 Mcf/d.
Upstream in the Permian Basin, Waha prices also were trending higher for February bidweek. BWA data showed Waha averaging up about 60 cents month/month at $2.460.
The steep withdrawal in storage inventories likely weighed on other markets as well.
In the Midwest, where stocks dropped by an astounding 85 Bcf last week, Chicago Citygate basis prices for February bidweek were tracking about 48 cents higher on the month at plus 66.5 cents, BWA showed.
In the Midcontinent, OGT basis was trading near plus 68.0 cents, up from an average of plus 22.75 cents for January bidweek.
In the South Central region, Houston Ship Channel February basis was tracking about 14.0 cents higher on the month at plus 0.008 cents, according to BWA. The move higher occurred after the EIA reported a monstrous 138 Bcf pull from regional inventories that flipped the surplus to a 7% deficit to year-ago levels.
Looming Warmth Quells Supply Worries
Not all markets were fazed by the steep storage withdrawal, however.
Eastern markets softened considerably as February forecasts appear warm for the first half of the month, at least. NatGasWeather said even with some fluctuations in the day-to-day models, the upcoming pattern is likely to be one of the warmest patterns of the past 50 years. The forecaster expects temperatures in the East to be 15-30 degrees above normal most days, with very little coverage of subfreezing highs, “a rarity for late January into February.”
The milder weather is likely to reverse the damage inflicted on regional storage inventories. The EIA said stocks for the week ending Jan. 19 fell by 58 Bcf in the East.
Altogether, working gas in storage totaled 2,856 Bcf on Jan. 19, 10 Bcf higher than last year at this time and 142 Bcf above the five-year average.
While early-February weather is likely to be wildly bearish, lingering production freeze-offs may offer short-term support as production remains 2-3 Bcf/d off earlier highs, according to EBW Analytics Group. LNG demand also appears to have largely recovered from steep mid-January declines.
With liquefied natural gas demand recovering higher and ongoing supply outages, “core fundamentals appear moderately stronger in the near term,” EBW senior energy analyst Eli Rubin said.
One enormous question mark, however, remains the scale of industrial demand losses, according to Rubin. He noted that spot prices at Henry Hub spiked above $13 during the latest winter blast, while regional gas prices across the Midwest reached into the $20-35 range.
“We estimate current industrial demand losses in the 1-2 Bcf/d range – and note that, in the aftermath of Winter Storm Uri, lingering industrial demand outages weakened fundamental storage balances for several weeks,” Rubin said.
While underlying fundamentals appear oversupplied – the market is likely to carry both hefty storage surplus and record production into the 2024 injection season – winter weather can quickly pare down anticipated storage risks, according to Rubin. “February weather will prove critical.”
