Absent much convincing cold in the forecast – and near-record production – natural gas prices were trending lower for January baseload delivery, according to NGI’s Bidweek Alert (BWA).
Notably, prices fell hardest in the West, a sharp turnaround from this time last year when Winter Storm Elliott slammed large swaths of the country ahead of Christmas and sent prices to record levels in the region.
Among the highest prices in the country for January, the PG&E Citygate was trading around $4.250/MMBtu on day one of the January bidweek trading period. However, this compares to an average of $6.355 last month and an average $49.520 for January 2023 bidweek.
At the SoCal Citygate, January bidweek was trading around $4.10 on day one of trading, down from an average of $6.525 last month and an average of $54.305 last year.
Although the Christmas forecast remains a balmy one for much of the Lower 48, the outlook for the West Coast appeared to be anything but. AccuWeather said a pair of storms would bring heavy rain to Southern California and the Southwest deserts, as well as rain and snow to the Pacific Northwest. The latest story may guarantee a white Christmas in a swath from Arizona to the Dakotas.
Despite the frosty forecast, prices in the Rockies also appeared to be trending lower for January baseload, BWA data showed. Opal was trading near $3.550 on day one of bidweek trading, down from an average $5.855 last month and the $51.325 average a year ago.
“The fact remains that the current year/year storage surplus in the West sits at 155 Bcf, or essentially double what it was at Labor Day,” Mobius Risk Group analysts said.
Over on the East Coast, Transco Zone 6 non-NY traded near $1.600 for January bidweek, BWA data showed. The location averaged $3.035 for December bidweek.
Among the few movers to the upside were locations throughout the country’s midsection. Chicago Citygate, for example, saw January basis deals average near plus 18.0 cents. This is up from a basis average of plus 5.5 cents for December.
EIA Support For Futures
Nymex futures action was largely uninspiring as well in the days leading up to the Christmas holiday.
That was until Thursday, when the Energy Information Administration (EIA) said stocks during the week ending Dec. 15 fell by a larger-than-expected 87 Bcf. Ahead of the EIA’s weekly report, analysts had projected a pull closer in the 70s-80s Bcf. NGI had modeled a 75 Bcf draw.
Even though the withdrawal fell well short of the five-year average pull of 107 Bcf, the 87 Bcf draw was enough to propel the January Nymex contract up 12.5 cents to $2.572. The prompt month managed to tack on a few more cents on Friday, closing out the week at $2.610.
Mobius analysts said the victory for market bulls was “symbolic as Mother Nature has laid down a full house of weather with Aces over Eights.”
More important than the bullish surprise versus market expectations, Mobius pointed out that the latest withdrawal was 5 Bcf larger than the same week last year, which had 15 more heating degree days. Regionally, Mobius said the Midwest was likely a big miss for the market, posting a 34 Bcf withdrawal that was 7 Bcf more than the prior week with little change in temperatures.
“There is not much to read into this regional data point unless the next several weeks deliver a similar surprise,” Mobius analysts said.
Early estimates submitted to Reuters for the EIA’s report covering the week ending Dec. 22 range widely from 65 Bcf to 87 Bcf, with an average decrease of 73 Bcf. That compares with a pull of 195 Bcf a year earlier and a five-year average decrease of 123 Bcf.
Even if the next datapoint again surprises to the bullish side, there was little additional support the market may be able to muster in the final week of 2023 – and likely throughout much of 2024.
On the weather front, temperatures looked to remain mild enough overall to limit heating demand. This includes the northern stretches of the country, where subfreezing temperatures would be hard to come by, while the South is expected to remain comfortable in the 40s-70s.
Long-range models pointed to the potential for some cooler systems to sweep across the country in the first week of the new year, but there’s some uncertainty on the timing of those systems and the chillier weather they may bring. Instead, the puffy jackets and Uggs may have to wait until the middle of January to come out of the closet.
While LNG demand was holding up a solid floor for prices – feed gas deliveries continued to come in around 15 Bcf/d – stout underground supplies and record production had a firm grasp on the market. Production has largely held near or above the 105 Bcf/d level this winter, ahead of a projected rise in liquefied natural gas demand that got kicked down the road after Golden Pass LNG said mechanical completion at its facility is not expected until the end of 2024. First exports aren’t expected until the first half of 2025. It originally had targeted operations before the end of next year.
Investment bank UBS Group AG said after updating its supply/demand model, it now sees domestic balances increasing to a 1-1.5 Bcf/d oversupply position through 2024. Driving this is higher associated gas from oil-directed regions like the Permian Basin. Marcellus Shale supply also is seen helping to more than offset Haynesville Shale declines. Power generation demand also declined in the updated UBS model.
“Within our 2024 outlook, we lowered our 2024 Henry Hub outlook from $3.50/MMBtu to $3.00, but left our 2025 Henry Hub forecast unchanged at $3.75,” UBS said. “Looking to 2025, we maintained our $3.75/ outlook as we forecast ramping LNG exports and limited supply growth to bring balances gradually to an undersupply position. We assume historical weather patterns, but winter weather remains a key variable for both the fiscal year 2024/’25 outlook.”
