- Weather models trend even warmer, sinking natural gas futures
- LNG demand hits new high
- Cash slides as moderate weather blankets much of U.S.
Though not completely unexpected, natural gas futures cratered Monday as long-range weather outlooks grew even milder. With December on track to come in within the Top 10 warmest on record, the January Nymex gas futures contract settled at $2.406, down 16.9 cents from Friday’s close. February dropped 15.3 cents to $2.433.
Spot gas prices also weakened as mostly comfortable temperatures were forecast for the United States. NGI’s Spot Gas National Avg. fell 12.5 cents to $2.405.
After dropping hints last week that the atmospheric pattern taking shape would portend a warm December, all guidance “congealed more solidly” around the idea by Monday, according to Bespoke Weather Services. This pattern may flood much of the country with warmer air once again, similar to what was seen in November.
“With these changes, it looks quite likely that we will see a December at least as warm as the last couple of Decembers, which would place it in the Top 10 warmest of all time, right on the heels of the fourth warmest November on record,” Bespoke chief meteorologist Brian Lovern said. “In short, the domination of warmth is set to continue.”
Price action was swift. The January Nymex contract opened the session more than 10 cents lower and quickly spiraled from there, sliding to a $2.381 intraday low.
EBW Analytics Group said the market is currently treating the 2020-2021 withdrawal season “just like other winters,” focusing on projected end-of-season storage and missing “the big picture.” Prior to the mild weather shift in Weeks 1-3 that began last week, there still was a significant risk that, before the end of the withdrawal season, storage could be drawn down to uncomfortably low levels, potentially driving up natural gas prices sharply.
“This risk has not yet been eliminated entirely,” EBW said.
In plausible scenarios, the February and March contracts could still rebound later this winter, according to EBW. However, it put the odds of a sharp rebound at no more than 10-15%.
“In a market grown accustomed to depressed prices, this has caused bulls to exit the market, reducing the winter month contract premium to near zero, driving down the spring, summer and fall contracts, and keeping cash prices at depressed levels,” the firm said.
Still, absent much higher prices, storage over the next year is likely to fall to dangerously low levels, according to EBW. In a “rational” market, natural gas prices would rise sufficiently to drive end-of-winter storage well above the five-year average. “Until the natural gas market recognizes the severity of next year’s storage crisis, though, cash prices and futures are likely to remain priced far below fair value,” the firm said.
Instead, the market may not strengthen materially until early next year, when a large year/year reduction in supply and strong liquefied natural gas (LNG) exports are likely to result in large draws even in a mild-weather scenario.
NGI data showed that LNG feed gas deliveries hit close to 11.5 Bcf/d on Saturday as full operations were restored at both the Sabine Pass and Freeport terminals and Corpus Christi’s third production unit continued to ramp up.
Cheniere Energy Inc. announced on Monday the first commissioning cargo for Corpus Christi Train 3. It also was Corpus Christi’s 200th cargo, loaded onto the La Mancha Knutsen. Corpus likely has an incremental 0.2-0.3 Bcf/d of capacity if all three trains operate at full capacity, according to EBW, so higher feed gas volumes are feasible. Smaller incremental increases also are possible at Sabine Pass and Freeport.
However, once out of the winter season, analysts have cautioned that Lower 48 gas exports remain at risk, with cargo cancellations likely throughout the summer, though not as severe as the level this year. More than 100 U.S. cargoes were canceled over the summer amid a supply glut and lackluster demand during the Covid-19 pandemic. The cancellations peaked at the height of shoulder season in the third quarter.
Raymond James & Associates Inc. analysts have said they expect the global LNG market to be about 2 Bcf/d oversupplied in 2021, versus 4-5 Bcf/d oversupplied at the low point this summer. “Thus, while early 2021 looks better than that of 2020, the market is still likely to see increased seasonal volatility, in our view. Summer 2021 could look similar to 2020 with cargo cancellations as soon as next May.”
Until then, international demand is robust as cold weather has hit Asia and Europe. Tighter shipping and lower capacity additions also have bolstered U.S. LNG, blowing out the price spreads between the United States and overseas markets and making it more profitable to move U.S. molecules.
Sea Of Red
Spot gas prices were soft to start the week, falling across the Lower 48 as any semblance of winter weather was set to quickly dissipate in the near future.
NatGasWeather said the East was expected to be “a touch cool” the next few days as one weather system exits the Northeast, while a second system spins up over the Southeast and tracks up the Mid-Atlantic Coast. However, most of the rest of the United States was forecast to be “quite comfortable” with daytime temperatures reaching the 40s to 70s.
The warmest weather was forecast in Texas, the Plains and the South, according to NatGasWeather. The West may cool late in the week as weather systems were expected to bring rain and snow before tracking into the central part of the country this weekend. “It was these systems that backed off on the amount of cold last week to disappoint.”
The less chilly outlook sent SoCal Citygate next-day gas prices tumbling 22.0 cents to $4.180, while in the Rockies, Northwest Sumas plunged 19.0 cents to $2.915.
In Texas, most pricing hubs fell between a dime and 20 cents amid near-perfect weather. However, Waha in West Texas slipped only 9.0 cents to $2.155 as the Permian Highway Pipeline continues to ramp up after becoming fully operational last week.
Louisiana prices fell similarly, but strong LNG demand limited the losses at Henry Hub, which fell 6.5 cents to $2.405.
On the East Coast, Columbia Gas spot gas fell 19.5 cents to $1.950, while downstream, Transco Zone 6 non-NY dropped 13.0 cents to $2.380.
Meanwhile, Equitrans Transmission is scheduled to conduct maintenance in Ohio from Tuesday (Dec. 8) through Dec. 18, reducing flows through the PLASMA-OVC compressor by up to 305 MMcf/d. Located on the Ohio Valley Connector (OVC), which stretches from northern West Virginia into Ohio, flows through the PLASMA-OVC compressor are being limited to 587 MMcf/d for the entire duration of the event, in which maintenance is to be performed at the Plasma and Corona compressor stations.
“This will restrict gas from being delivered to interconnects with Rockies Express Pipeline and Rover Pipeline at the western end of the OVC,” said Genscape Inc. analyst Anthony Ferrara.
Over the past 30 days, deliveries have averaged 837 MMcf/d and maxed at 892 MMcf/d, according to Genscape. However, the compressor station often flows scheduled quantities slightly above the operational capacity.
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