In another stunning move, natural gas futures plummeted further on Tuesday as the current cold snap hitting the Lower 48 – expected to dissipate by week’s end – appears to be falling short in drumming up demand.
At A Glance:
- Market ignores big drop in production
- Near-term demand falling short
- Cash prices crater as demand fades
Traders also brushed off a huge decline in natural gas production given most of it was tied to maintenance work. The November Nymex futures contract settled at $5.745/MMBtu, down 25.4 cents day/day and bringing the two-day loss to 70.8 cents.
Spot natural gas prices were mostly higher with another couple of days of chilly weather in the forecast. NGI’s Spot Gas National Avg. tacked on 14.5 cents to $5.745.
Funny how weather dominates natural gas trading even when there is little to speak of. While heavy snow arrived in the Windy City on Monday and was set to pile up in the Northeast beginning Tuesday, market observers said demand thus far is falling short of expectations.
“I thought we would see some improvement as these first ‘real’ heating degree days hit, but, so far, the scrapes still look pretty weak,” Vortex Commodities CEO Brian Lovern told NGI.
The underwhelming gas demand comes as temperatures on Tuesday morning dipped into the single digits in parts of Minnesota and North Dakota and in the low double-digits in other areas of the Midwest. Combined with gusty winds, AccuWeather said real-feel temperatures slid a few degrees below zero.
Farther east, some snowflakes were spotted as early as Monday night in the eastern Great Lakes region and the central Appalachians, with larger amounts expected on Tuesday. However, several areas were not expected to see temperatures fall below the freezing mark, according to AccuWeather.
That said, New York City and many other locations are likely to experience their lowest temperatures since late April or earlier in the spring, AccuWeather said. As the cold air shifts eastward, another step down in temperature is in store by Wednesday morning.
Some of the lowest temperatures of the cold outbreak are expected to occur on Wednesday and Thursday night, according to the forecaster. A clear sky and a decrease in winds after sunset should allow temperatures to plummet outside of the major East Coast cities. Widespread lows in the 20s to lower 30s are in store for the interior Valleys, with near-freezing temperatures over the ridges.
Temperatures are expected to begin climbing by the end of the week, though, quickly sapping demand in the process. The high in Chicago could reach a balmy 70 by Friday, while New York City should reach the upper 60s by Saturday.
“The weather pattern looks quite tame in the medium range, as well, which is not helping any bull case, so here we are in the $5.70s,” Lovern said.
With demand lagging expectations amid this week’s cold front, the torrid pace of storage injections may continue for awhile longer. Over the past four weeks, the gas market has injected 460 Bcf into storage and dramatically trimmed the deficit to both year-ago and five-year average levels.
Expectations for the next storage injection also are pointing to 100 Bcf-plus build, though it may be a bit lower than last week’s, according to Het Shah of Analytix.AI. The analyst noted that production during the reference period ending Oct. 14 was almost flat week/week, and power burns remained low amid the drop in cooling degree days. Overall power loads were down by 19.7 average GWh, or 8.2%, week/week. Nearly every type of generation source contributed to the decline, except for wind.
Meanwhile, LNG demand remained soft amid the ongoing outage at Cove Point LNG, while liquefied natural gas exports from Freeport also remained shut in. As such, Shah expects this week’s storage injection to be 109 Bcf, which would beat last year’s 91 Bcf injection and the 73 Bcf five-year average build.
Importantly, Shah said net LNG deliveries on Tuesday were nominated to be 12.1 Bcf as total deliveries continue to increase as cooler weather sets in and the utilization factor increases at LNG terminals. “The jump over 12 Bcf/d is a significant milestone considering both Cove Point (0.77 Bcf/d) and Freeport (2.0 Bcf/d) are unavailable. If everything were active, then feed gas levels could easily surpass 15 Bcf/d.”
It is this piece of structural demand that Lovern said is currently not being given enough weight by the market. “That makes me think most market players expect additional Freeport delays, as some of this price action and the spreads are hard to explain, otherwise.
“Of course, if we stay warm – and my personal lean is to the warm side at least into the first third of November – then the bears can maintain control,” he said.
West Cash Gains
Spot natural gas prices were generally higher on Tuesday, but the majority of U.S. locations posted only modest increases. California was an exception to the rule as summer-like temperatures continued to keep air conditioners cranking on the West Coast.
AccuWeather said highs in Los Angeles would hit 92 degrees on Wednesday, with heat continuing through Thursday. A return to more season temperatures in the upper 70s was likely by Friday.
With drought conditions continuing to impede hydroelectric power generation, gas has stepped up to the plate to fill the void. On Tuesday, SoCal Border Avg. spot gas prices jumped 44.5 cents day/day to $6.645. PG&E Citygate picked up only 5.5 cents but commanded a higher $7.785 price.
Cash in parts of the Desert Southwest also rallied sharply. El Paso S. Mainline/N. Baja shot up 82.5 cents to average $7.505.
Price increases tapered off moving into the Rockies, where Transwestern San Juan put up the biggest gain of 27.5 cents on the day to average $5.625.
Spot gas prices started to buckley a bit in the Southeast and into Louisiana. Losses of more than 20 cents were seen along the Transcontinental Gas Pipe Line Co. and Tennessee Gas Pipeline. Benchmark Henry Hub slipped only 2.0 cents to $6.000.
Notably, the majority of Texas locations posted modest gains as temperatures were forecast to plunge from a high above 90 on Sunday to a low of 44 overnight Tuesday. Whether this commands a significant increase in heating demand is debatable, but it was enough to fuel a miniscule bump in cash prices. Houston Ship Channel edged up 3.0 cents to average $5.300.
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October 19, 2022 at 11:57PM
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Natural Gas Futures Post Another Loss as Near-Term Cold Seen Subsiding Quickly - Natural Gas Intelligence
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