Natural Gas Forward Prices Rise in the East, Fall in the West as Market Braces for Cold – Natural Gas Intelligence

Natural gas forward gains were widespread during the Dec. 8-14 period as forecasts showed Arctic chills sweeping through the eastern two-thirds of the Lower 48 heading into the back half of December. Meanwhile, already-elevated western hubs saw prices moderate, according to NGI’s Forward Look.

As the market locked onto the coming cold blast and a looming spike in heating demand, Henry Hub fixed price forwards rallied 70.7 cents during the Dec. 8-14 period to finish at $6.440/MMBtu. That set the tone for fixed price gains for most Lower 48 hubs during the week.

The notable exceptions were out West, where fixed prices remained elevated but declined sharply week/week. Malin January fixed prices tumbled $5.622 to $13.287 during the period.

Nymex futures, meanwhile, generally strengthened during the period, buoyed by the prospect of a turn toward much chillier temperatures following underwhelming weather-driven demand to open December. The January Nymex contract rallied 54.0 cents Thursday to settle at $6.970.

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Western Basis Moderates

In terms of regional basis shifts, the biggest swings occurred in the western Lower 48 during the Dec. 8-14 period, Forward Look data showed. In California, PG&E Citygate January basis shed $5.999 to end at plus-$8.007. SoCal Citygate front month basis dropped $5.037 to end at a $10.259 premium to Henry Hub.

Elevated physical pricing in California this month reflects “a poorly-timed spike in demand, alongside upstream supply worries as we head into the thick of the winter season,” Wood Mackenzie analyst Quinn Schulz told clients in a recent note.

Recent draws have left inventories on both the PG&E and Southern California Gas systems lagging the prior five-year average, the analyst said.

“Recent upstream constraints also help to further tighten the region,” Schulz said. “The first and most long-term constraint is a barrage of maintenance events” on the North Mainline of the El Paso Natural Gas (EPNG) system. “These events have collectively cut westbound flows by 277 MMcf/d since Nov. 28 and will last until the end of December.

“…Given these circumstances, unanswered questions about the return-to-service date for EPNG’s Line 2000 are further dampening confidence in California’s winter supply.”

The Energy Information Administration (EIA) Pacific region withdrew 14 Bcf from storage for the week ending Dec. 9, leaving stockpiles in the region at 203 Bcf. That’s a 26.4% deficit to the five-year average of 276 Bcf, EIA data show.

Meanwhile, basis strengthening was widespread along the East Coast during the Dec. 8-14 period as traders assessed the impacts of what’s shaping up to be a frigid stretch for the eastern Lower 48 heading into the Christmas holiday.

The latest six- to 10-day forecast (next Tuesday through Dec. 24) from Maxar’s Weather Desk Thursday showed an “Arctic air mass settling” into the central Lower 48 “during the early half before expanding further south and eastward from mid to late period. Temperatures are strongly below normal in association.”

The 11- to 15-day period (Dec. 25-29) was expected to carry over “widespread much and strong belows in the Eastern Half. Belows wane over the course of the period as aboves expand in the West,” according to the forecaster.

Transco Zone 5 January basis surged $2.730 higher week/week, ending at a $11.121 premium to Henry Hub. Cove Point jumped $2.730 to plus-$11.178. 

Farther north in New England, hubs maintained or added to already hefty January premiums. Tenn Zone 6 200L finished at plus-$27.018, a 79.3-cent gain week/week, Forward Look data showed.

‘Rather Intimidating’ Cold

The latest EIA report Thursday revealed a lighter-than-average net 50 Bcf withdrawal from U.S. natural gas storage for the week ending Dec. 9, though traders are likely to be more interested in how inventories fare with late December cold.

“The market has appeared reticent following recent high-profile forecast busts,” EBW Analytics Group LLC analyst Eli Rubin told clients. “If the cold blast delivers, however, 225 Bcf-plus weekly storage draws could send January shooting higher.”

Still, in the bigger picture, a cold blast to close out 2022 is unlikely to usher in pressing storage adequacy concerns, according to the analyst.

“On a seasonal basis, the winter storage trajectory appears sufficient, and downward pressure on Nymex futures could resume as soon as the market can see through the upcoming cold blast to warmer temperatures ahead,” Rubin said.

Midday weather data from the American model trended colder Thursday, including by suggesting frigid temperatures would be “slower to erode or moderate” during the Dec. 27-30 time frame, according to NatGasWeather.

“Most importantly, the midday data remained impressively cold this weekend through next week as several frigid shots sweep across the U.S.,” the firm said. “…The first in a series of frigid blasts will sweep across the U.S. this weekend” with lows ranging from below zero to the 20s over the northern Lower 48 and in the teens to 30s farther south, enough to drive “strong national demand.”

Subsequent “reinforcing Arctic blasts” set to arrive next week appeared “rather intimidating” in the latest forecasts, NatGasWeather added. They are expected to deliver extremely frigid conditions for the Midwest and Plains before the cold would spread farther south and to the east.

Freeport Restarts When?

Meanwhile, as residential/commercial demand is set to rise sharply into late December, the timing of the Freeport LNG terminal’s return to service remains a “critical fundamental piece of the demand equation,” according to Rystad analyst Ade Allen.

Recent news of a lengthy request for information from federal regulators directed at the Freeport LNG terminal “has added to speculation that the timeline could potentially shift again,” the analyst added.

Even so, “the current short-term weather forecast is strong enough to offset the lack of exports and provide buoyancy to the overall winter demand picture,” according to Allen.