With February only days away, the natural gas market may be closing the book on winter – and brushing off news of Freeport LNG’s impending restart – as forward prices continued to soften through the Jan. 19-25 period, according to NGI’s Forward Look.
The past week’s trading patterns continued the trends that have played out throughout much of the season, with the West and East coasts leading the step lower as intimidating cold has been lacking from recent forecasts.
NatGasWeather said a strong winter storm would exit the East on Thursday, while a colder system upstream was forecast to track across the Midwest over the next few days. This system is expected to open the door for reinforcing frigid shots to advance aggressively into the northern and central United States, however, the latest data backed off this possibility. It also didn’t show frigid air sticking around as long, especially in the Global Forecast System (GFS) model.
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“The overnight European Centre is still impressively cold for Jan. 31-Feb. 4 for very strong national demand, but then moderates temperatures over the southern and eastern U.S. faster Feb. 5-8, like the GFS,” NatGasWeather said.
With storage inventories in the East tracking near seasonal levels, forward markets traders were content to take prices down a few more notches.
New England’s Algonquin Citygate tumbled $1.270 to $11.935 for February, Forward Look data showed. The summer strip (April-October) fell 12.0 cents to average $3.110, while the upcoming winter strip (November-March) managed to pick up a penny to average $13.077.
Similar price decreases were seen along Transcontinental Gas Pipe Line Co. Transco Zone 6 non-NY’s February contract slid $1.060 to $6.681. The summer strip lost a dime to reach $2.730. Prices for next winter were down 52.0 cents to $7.791.
The sell-off was even more pronounced on the West Coast. Notably, however, prices remain at a sharp premium over the rest of North America given the vastly different supply/demand picture out West.
For example, when it comes to storage, the Pacific region stands out as the only one where inventories are lagging historical levels – at more than 30% below the five-year average, according to government statistics.
At the same time, AccuWeather said the transition to spring from winter may be slow on the West Coast, with a few more waves of rain and mountain snow likely. The late winter and early spring storms in California may not be as frequent or as furious as the storms that kicked off 2023. However, they should continue to alleviate the drought conditions that have persisted for the past few years.
AccuWeather said the onslaught of storms from late December through early January completely erased the extreme and exceptional drought conditions across the state. More rounds of precipitation late in the winter and early spring should continue to lessen the severity of the ongoing drought across the region. This is in stark contrast to 2022, when a dry end to winter and start to spring caused the drought to worsen.
The rainy season should bode well for hydroelectric power generation this spring, with a recovery in output likely to put a damper on power burns. That said, the availability of that gas supply could finally make its way into storage, where it’s needed.
To that end, gas flows also may improve in the coming weeks.
Kinder Morgan Inc. on Wednesday asked federal regulators to lift the pressure restriction on Line 2000 of the El Paso Natural Gas Pipeline (EPNG) system to return the line to commercial service.
Work to repair the line was completed earlier this month following an August 2021 explosion near Coolidge, AZ. However, EPNG advised shippers that the Pipeline and Hazardous Materials Safety Administration would need time to review the request.
“If we were to assume a two-week turnaround for approval, this would place the line back into service near Feb. 7,” said Wood Mackenzie’s Quinn Schulz, natural gas analyst. “While this submittal is earlier than what we expected, the fact remains that we still cannot be certain how long this approval may take due to the circumstances surrounding this event: the fatalities, the length of the fix, etc.”
Bearish Macro Outlook
Price declines were a bit more tempered across most other U.S. forward curves, though the unsupportive market signals continued to have a strong influence on the market.
Aside from the increasingly bearish near-term weather outlook, the latest government storage data also did little to inspire a rebound for prices.
The U.S. Energy Information Administration (EIA) on Thursday said inventories for the week ending Jan. 20 fell by 91 Bcf. Though the withdrawal was larger than expected by most analysts, it still fell well short of normal pulls for this time of year. A pull of 217 Bcf was recorded during the same week last year, while the five-year average draw is 185 Bcf.
The East led all regions with a pull of 40 Bcf, while the Midwest followed with a draw of 36 Bcf. Mountain and Pacific region inventories each fell by 7 Bcf.
South Central stocks, meanwhile, decreased by a net 2 Bcf. The result reflected a 3 Bcf injection into salts that was more than offset by a pull of 5 Bcf from nonsalt facilities, EIA said.
Even with the larger-than-expected withdrawal, inventories as of Jan. 20 stood at 2,729 Bcf, which is 107 Bcf higher than a year earlier and 128 Bcf above the five-year average.
One participant on Enelyst, an online energy chat, said tighter numbers may arrive in the weeks ahead, especially considering the expected cold snap – brief as it may be. That said, it’s “too little too late in the big picture.”
At the very least, though, the slightly larger-than-expected withdrawal “should give some pause to this falling knife,” according to advisory firm Valor Analytics. “Still needs a lot of weather support. Otherwise, the big guys are gunning for a $1 handle soon.”
Indeed, with exports still languishing amid the continued outage at the Freeport liquefied natural gas terminal, ample production and lackluster demand have taken a swift toll on prices. Prices could turn around soon, though.
Freeport LNG on Thursday received FERC approval to begin commissioning, including cooldown, of Loop 1 transfer piping and to reinstate service of the boil off gas management system. It had asked the Federal Energy Regulatory Commission for permission to begin preliminary work to restart operations on Monday (Jan. 30).
NGI’s LNG Export Tracker showed modest amounts of feed gas being delivered to the 2.38 Bcf/d terminal on Thursday. Freeport LNG has been shut since a June explosion.
The Freeport news largely unfazed bears, though. February Nymex futures settled Thursday at $2.944, off 12.3 cents from Wednesday’s close.
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