Natural gas prices jumped in February bidweek trading as cold winter blasts permeated the nation’s midsection and much of the East, fueling heating demand and threatening production cuts. Anticipation of a massive snowstorm walloping the East Coast over the final weekend of January – the storm did indeed deliver – furthered the momentum.
NGI’s February Bidweek National Avg. climbed 71.0 cents month/month to $6.785/MMBtu. It was up 140% from the $2.825 recorded in the February 2021 bidweek.
Several demand hubs in the nation’s midsection and the East, where freezing low temperatures were widespread over the final days of January, bolstered bidweek trading that spanned Jan. 25-27.
Northeast natural gas prices led the way. Iroquois Zone 2 spiked $4.965 to average $18.320, and Transco Zone 6 NY soared $3.330 to $10.355.
Following frigid temperatures early in the covered period, a weekend blizzard buried the Northeast, dumping eight inches of snow on New York City and a one-day record 23.8 inches on Boston, according to the National Weather Service.
Meanwhile, in the central United States, Chicago Citygate jumped $1.355 to $7.030, while Houston Ship Channel climbed $1.760 to $6.420 and Enable East in the Midcontinent rose $1.585 to $6.410.
During bidweek, the February Nymex natural gas futures finished its final session last Thursday (Jan. 27) with a furious rally. It gained $1.988 on the day and settled at $6.265/MMBtu before the contract rolled off the board. That far surpassed any other settlement in 2022. In its debut as the front month the next day, March jumped 35.6 cents and climbed further on Monday.
The prompt month rallied for eight consecutive sessions before finally giving up ground on Tuesday. March closed the day at $4.751, down 12.3 cents day/day.
Futures forged ahead in recent sessions as weather forecasts for February increasingly called for Arctic air to persist into the second week of the month. Beginning Wednesday of this week, NatGasWeather said a severe cold “blast sweeps across the Midwest, Plains and Northeast with lows of -20 to 20s, including lows of 10s to 30s deep into Texas and the South to aid strong national demand.”
Rystad Energy’s Kaushal Ramesh, senior analyst, said the frosty conditions “will drive price behavior in the coming days.”
The frigid conditions also are expected to cause another round of freeze-offs in the Permian Basin and neighboring natural gas producing areas. This would follow production curtailments early in January that slowed activity and kept output last month well below 2021 highs, adding price support.
“The market awaits a potentially dichotomous outcome surrounding the risks of widespread freeze-offs in Texas later this week,” said EBW Analytics Group’s Eli Rubin, senior analyst.
Rubin, however, noted that while the expected cold front kindled memories of Winter Storm Uri one year earlier, forecasters do not expect this week’s weather to be nearly as harsh or shock gas markets in the south-central United States as Uri did.
Still, freeze-offs have already hampered output and markets are concerned about the prospects for more disruption. After peaking north of 97 Bcf/d in December, U.S. production dipped to around 93-94 Bcf/d through most of January, including bidweek.
Robust and steady demand for exports of U.S. liquefied natural gas (LNG) added bullish sentiment. Amid widespread supply shortages this winter in Europe, countries across the continent are consistently calling for U.S. shipments of the super-chilled fuel. American LNG feed gas volumes held near record levels much of January.
Sinking Supplies in Storage
Citing the demand strength, analysts at Tudor, Pickering, Holt & Co. (TPH) said they’re now modeling 1.5 Tcf in U.S. storage to exit the winter, notably lower than a previous forecast of 1.8 Tcf. Storage withdrawals exceeded 200 Bcf with each of the past two U.S. Energy Information Administration’s (EIA) inventory reports. Analysts widely expect the trend to continue with this Thursday’s print, which covers the week ended Jan. 28.
The “epic move” higher for futures last week reflected forecasts for a cold start to February and “subdued” supply, the TPH analysts said.
NGI’s model called for a withdrawal of 286 Bcf for this Thursday’s report. If realized, that would easily exceed the year-earlier 183 Bcf withdrawal and the five-year average pull of 150 Bcf.
Analysts at The Schork Report projected a pull of 282 Bcf and noted it would mark the first time since 2014 that EIA reported three consecutive draws greater than 200 Bcf. Early results of a Bloomberg survey of analysts found withdrawal estimates ranging from 263 Bcf to 286 Bcf, with a median of 280 Bcf.
Bespoke Weather Services estimated a pull of 280 Bcf with the next EIA print. It projects pulls in excess of 200 Bcf each of the following two weeks as well.
“We must still consider the cold we still have in place, nationally, and the resultant pulls on storage, and now, some increased risk of cold beyond the middle of February, which could reduce storage even more,” Bespoke said.
EIA reported a withdrawal of 219 Bcf from natural gas storage for the week ended Jan. 21. It was the biggest pull of the season to date and flipped inventories from a surplus of 33 Bcf relative to the five-year average to a deficit of 25 Bcf. The draw left inventories at 2,591 Bcf.
Looking ahead, markets are likely to fixate on forecasts for mid-February and beyond.
“The overnight data maintained national demand fading Feb. 9-12 as a warm break sets up over the southern and eastern U.S.,” NatGasWeather said. “However, much of the weather data continues to suggest cold air will return across the northern U.S. Feb. 13-15 for a swing back to strong national demand.
“As such, we view the coming pattern as bullish, but it would be more so if not for the milder break.”
