Natural gas futures rallied on Friday for the fourth time in the latest week’s five sessions, bolstered by subzero temperatures, production curtailments and a vigorous cash market. The February Nymex gas futures contract jumped 21.6 cents day/day and settled at $3.313/MMBtu.
At A Glance:
- Fierce winter freeze spreads
- Production substantially lower
- Significant storage pulls loom
The March through May contracts all advanced as well.
Physical markets spiked as utilities stocked up to meet peak winter demand over a long weekend that extends through Monday because of the Martin Luther King Jr. holiday. NGI’s Spot Gas National Avg. swelled $13.450 to $16.770.
Wood Mackenzie estimated production at 103.3 Bcf/d on Friday, down nearly 3 Bcf/d from the start of the week in part because of freeze-offs in the Rocky Mountain region, North Dakota and the Midcontinent that were expected to extend into the week ahead.
NatGasWeather said the frigid cold shot that had, by early Friday, delivered brutal temperatures as low as minus-20 in northern markets would spread in the week ahead and cover much of the Lower 48. While southern markets are unlikely to experience subzero conditions, freezing daytime temperatures could canvass large swaths of heavily populated states, including Texas.
“Major short-term market disruptions are possible in the days ahead,” EBW Analytics Group’s Eli Rubin, senior analyst, said on Friday. Physical market upside is likely to extend into trading after the weekend, he said, and this could again boost bullish futures market sentiment. “Nationally, spot market demand may soar 25-30 Bcf/d into Tuesday, but the larger risks come from gas production freeze-off risks simultaneously limiting supply.”
That noted, forecasts as of Friday suggested that the Permian Basin “may avoid the brunt of cold — sparing the market from the most severe freeze-off risks,” Rubin added.
Tudor, Pickering, Holt & Co. analyst Matt Portillo said heating degree days for the past week were seven above the five-year average amid strengthening residential and commercial demand.
“Over the coming weeks, we will be looking for freeze-offs to impact supply numbers as well as leading to stronger draws” of natural gas from underground storage, Portillo said.
Inventory Views
For the next U.S. Energy Information Administration (EIA) inventory report, covering the week ended Jan. 12, Portillo modeled a 160 Bcf pull. If realized, it would mark a second straight triple-digit storage withdrawal.
EIA posted a draw of 140 Bcf from storage for the week ended Jan 5. It eclipsed both the five-year average decrease of 89 Bcf and market expectations for a pull around 120 Bcf.
The decrease for last week lowered inventories to 3,336 Bcf, but stocks held 348 Bcf higher than the five-year average, according to EIA.
Portillo said hefty draws could define the next few weeks, potentially bringing supplies roughly in line with historical norms.
Mobius Risk Group analysts agreed. “A closer look at some early expectations for next Thursday’s report, and a potential outcome for the subsequent report, indicate the surplus could be down to less than 200 Bcf before we even see the final two reporting periods in January,” they said.
Early withdrawal estimates reported to Reuters for the Jan. 12 period ranged from 116 Bcf to 161 Bcf, with an average decrease of 123 Bcf. The estimates compared with a five-year average decrease of 126 Bcf and a year-earlier decline of 68 Bcf.
For the week ahead, the “intensity” of cold is bound to not only accelerate heating demand, but it “is severe enough and geographically diverse enough to impact production in more than five states, which could make for an interesting” stretch of trading, the Mobius team said.
Physical Prices Pop
Cash prices on Friday flew higher alongside the march of frigid weather across the country.
NatGasWeather said bitterly cold air would descend from Canada and advance through the Northwest, Rockies and Plains over the weekend and early in the coming week. It could deliver freezing rain, heavy snow, gusty winds and subzero temperatures in northern areas.
Temperatures were expected to prove mild over the South and East ahead of the Arctic blast, the firm said, before shifting notably colder by Monday as weather systems sweep through. Such conditions were projected to last through the week before beginning to warm back to average beginning around Jan. 22.
Against that backdrop, spot prices posted their strongest gains of winter across the Lower 48, with gains of $10 or more commonplace.
SoCal Border Avg., for one, surged $10.700 day/day to average $15.980 for gas delivered Saturday through Tuesday.
In Texas, Tolar Hub soared $18.955 to $21.705, while Chicago Citygate spiked $22.820 to $25.815.
In New England, PNGTS climbed $12.380 to $16.635. Tenn Zone 1 100L in the Southeast gained $10.670 to $13.520.
While the most severe weather will impact the North, AccuWeather senior meteorologist Bill Deger said Friday “that a blast of bitterly cold Arctic air will surge south along the Plains and into the South early” in the week ahead, “threatening lives, property and the power grid due to a prolonged period of subfreezing temperatures…It may end up representing the most widespread and coldest air mass the country will endure all winter.”
A “piece of the same storm that will impact the South can also reach the mid-Atlantic and Northeast, marking a continuation of the stormy pattern that has plagued this region for weeks,” Deger added. “The difference with this storm will be the cold air in place, which should result in more snow in the bigger cities after multiple deluges of heavy rain.”
