Storm lifts Q1 forward curve at Algonquin, Transco Z6
Weather Service forecasts mild temps in Jan, Feb, Mar
Record production, storage exacerbate weather risk
New York — As the US Northeast digs out from its first major winter storm, a bullish runup in first-quarter 2021 gas prices there is looking overdone now with weather forecasts and supply gains posing a risk to the rally.
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Register NowOver the past week, freezing temperatures, ice and heavy snow have blanketed the Northeast, fueling a rise in the cash and forwards markets as regional gas demand climbed to its highest since last winter.
At Appalachia's benchmark supply hub, Dominion South, the Q1 forward curve has gained 33 cents since Dec. 8, most recently settling at $2.08/MMBtu, S&P Global Platts M2MS data shows.
In key downstream demand markets, the rally has been even more pronounced. At Transco Zone 6 New York, first-quarter prices are up 46 cents over the past two weeks to an average $3.87/MMBtu. At Algonquin city-gates, the forward curve has climbed $1.35 to $5.40/MMBtu. Following a disappointing start to the Northeast heating season last month, winter forwards prices at hubs across the region were down sharply previous to the mid-December rally.
With near-term and seasonal forecasts predicting milder weather ahead for the Northeast, though, both cash and forwards markets are likely to come under renewed pressure in the days ahead.
On Dec. 21, spot prices in downstream demand markets were mixed in early trading, with Algonquin city-gates falling more than $3 to $4.08/MMBtu. At Transco Zone 6, prices were up about 17 cents from the prior settlement to $3.02/MMBtu, data from Intercontinental Exchanged showed.
Weather outlook
Over the next two weeks, regional temperatures in the Northeast are forecast to warm significantly to an average 37 degrees, leading a sharp drop in heating demand.
According to S&P Global Platts Analytics, residential-commercial demand should trend closer to weather-normal levels in the next 14 days, averaging about 14.7 Bcf/d – down from recent winter-to-date highs at over 19 Bcf/d.
A forecast from the National Weather Service shows the Northeast at risk for potentially even milder weather in the months ahead. From January to March, the agency is predicting a 33% to 40% risk for above-average temperatures, according to a three-month outlook published Dec. 17.
In November, Northeast temperatures averaging about 3.5 degrees above normal saw regional res-comm demand average just 8.7 Bcf/d – more than 2 Bcf/d, or about 20%, below normal.
Supply
Recent supply gains in the Northeast could exacerbate the downward pressure on winter gas prices that comes from milder weather in the weeks ahead.
In December, Appalachian gas production has averaged its highest on record at 33.9 Bcf/d. With producer prices at Dominion South hovering near $2 month-to-date – their highest since November 2019 – operators appear to be responding by ramping up output. According to Platts Analytics, recent gains are distributed widely across the Pennsylvania Marcellus and West Virginia.
Elevated regional storage levels could add to the supply side pressure. On Dec. 21, Northeast gas storage was estimated at 905 Bcf – about 45 Bcf above the prior five-year average and its highest late-December level since 2015, Platts Analytics data shows.
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December 22, 2020 at 03:36AM
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Weather forecasts, supply gains pose risk to rally in Northeast winter gas prices - S&P Global
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