Despite December Warmth, January Chills Send Shiver Through Natural Gas Forwards Market – Natural Gas Intelligence

As forecasts suggested a mild Christmas could give way to a chilly New Year’s, the natural gas market baked in a healthy dose of upside for January prices during the Dec. 16-22 trading period, NGI’s Forward Look data show.

Fixed gas prices for January delivery mounted double-digit gains throughout the Lower 48 for the period, with most locations exceeding the 17.9-cent week/week mark-up at benchmark Henry Hub.

Given a frigid cold pool looming to the north in Canada in projections for early January, Lower 48 traders showed no signs of complacency, recognizing the potential for outsized price spikes ahead even amid the glaring absence of threatening winter chills to date.

The potential for frostier conditions to develop in January, along with surging liquefied natural gas (LNG) exports, saw Nymex futures brush up against the $4/MMBtu mark during the period, but traders expressed their impatience in Thursday’s session as forecasts trended warmer and sewed doubts over how much cold would materialize.

The January Nymex contract plunged to a $3.599 intraday low early in the session but ultimately settled at $3.731, off 24.5 cents from Wednesday’s close.

Storage Flips to Surplus

The latest Energy Information Administration (EIA) storage report Thursday, a 55 Bcf withdrawal for the week ended Dec. 17, confirmed the balance-loosening impact of December warmth with a milestone moment as Lower 48 stocks eclipsed the five-year average for the first time since April.

“Our modeling still shows the market as tight relative to the five-year average, rather easily,” Bespoke Weather Services told clients following the latest EIA print. “But the big problem, of course, is we need weather demand to show up. If it does, we can rally.”

Forecasts during the week did tease a colder turn during the first week of January that could boost heating demand.

[Forward Look: Quickly understand where the price of natural gas is headed with these graphic dayonday comparisons of NGI’s forward curves at 70 locations. View Now.]

NatGasWeather cautioned that given a “frigid cold pool” over southern Canada during this time frame, any “slight shift north/south” could dramatically change the calculus for weather-driven demand to open 2022.

In Wednesday’s model runs, “the trend in the frigid cold pool was further south into the U.S., while overnight it reversed further north,” the firm said in a note to clients Thursday. “We expect the weather data will continue to bounce between colder and warmer trends for the first week of January.”

This was creating a situation for traders where “holding over the long Christmas holiday break” would be “extremely risky, because a feast-or-famine gap is likely at the Sunday reopen” depending on weekend forecast trends, NatGasWeather said.

During the Dec. 16-22 time frame, traders throughout the Lower 48 appeared unwilling to chance any January upside surprises, and this was especially the case for East Coast population centers where price spikes have occurred in recent winters.

Algonquin Citygates January basis ballooned to plus-$25.136 for the period, a $7.458 increase week/week. Farther south, Cove Point basis swelled $1.792 to plus-$6.393.

Price action at Midwest and Rockies hubs similarly reflected increased upside for January.

Chicago Citygate basis surged 61.1 cents week/week to plus-98.7 cents, while Cheyenne Hub surged $1.433 to plus $1.589. Northwest Sumas soared $10.534 week/week to trade $12.193 north of Henry Hub.

Maxar’s Weather Desk as of Thursday was modeling some of the coldest conditions over the 15-day projection period for the Northwest. 

Even with warmer adjustments overall for the six- to 10-day time frame, from Tuesday (Dec. 28) through Jan. 1, “a lobe of the polar vortex brings the coldest air seen in several years to the Northwest, with lows in the teens in Seattle from days six to eight and Portland on days seven to eight.”

The Midwest was expected to occupy the boundary between “western chill” and “unseasonably warm conditions further south and east,” according to the forecaster.

In the Jan. 2-6 time frame, the forecast called for “below and much below-normal temperatures” over the West and North-Central Lower 48, “while above-normal readings are in the South,” Maxar said. “The East is forecast to be near normal overall; however, high pressure should pull a round of below normal temperatures into the region around mid-period.”

Exports Top 13 Bcf/d

The soaring regional January prices occurred against a backdrop of strengthening LNG demand, with NGI’s U.S. LNG Export Tracker modeling total exports above 13 million Dth/d during the period.

EBW Analytics Group similarly observed a jump in feed gas demand earlier in the week, with volumes reaching 13.1 Bcf/d. Weaker domestic production served to further tighten balances, EBW senior analyst Eli Rubin said.

However, looking longer term, “downward pressure is likely to resume as the March contract becomes the front-month,” Rubin said. “Absent a plausible threat to winter supply adequacy, natural gas may grind lower into early spring.”

Still, the strength in LNG exports offered up a reminder that the domestic market remains tethered to conditions overseas. The trading week brought record-high prices for the Dutch Title Transfer Facility (TTF) benchmark in Europe, Rystad Energy senior analyst Kaushal Ramesh said in a note Wednesday.

“Global gas markets are witnessing a ‘glitch in the matrix’ today thanks to a confluence of factors, including Russian gas flow concerns and French nuclear availability, driving the TTF to all-time highs…and well beyond prices that Asian LNG spot buyers are willing to pay,” Ramesh said.

Prices as of Wednesday had “cooled somewhat” but remained close to $58/MMBtu, the analyst said.

Asia’s appetite for purchasing LNG cargoes “is no match for Europe, where storage levels stand at a mere 58% of capacity,” Ramesh said. “Consequently, Europe has become an LNG magnet, attracting marginal U.S. cargoes and those previously bound for Asia and reloads from Asia.”

The U.S. market remains “largely isolated from the chaos in the rest of the world,” though strong export demand has contributed upward pressure to prices along with the prospect of higher January heating demand, according to the analyst.

“The recent calming of Henry Hub prices has likely supported some coal-to-gas switching, and a price support level of around $3.50/MMBtu is expected throughout the winter months,” Ramesh said.

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