Natural Gas Forwards Rally Further as Cold Snap Seen Widening Deficits after Massive Recovery – Natural Gas Intelligence


Natural gas forward prices continued to strengthen during the Nov. 9-16 period amid a continuation of colder-than-normal temperatures ahead of the core of winter, according to NGI’s Forward Look.

Gains (again) were most pronounced in New England, where rising heating demand and pipeline constraints combined to drive hefty premiums compared to the rest of the country.

Basis prices at the Algonquin Citygate were the clearest example of the tight conditions that have plagued the region. December basis climbed $1.05 during the period to reach $11.296, Forward Look data showed. For comparison, December basis averaged only 4.0 cents across North America.

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Substantial premiums extended throughout the winter strip, with Algonquin fixed prices for January jumping $3.210 to $28.830, and the balance of winter (December-March) climbing $2.200 to $22.395. By next summer (April-October), prices are seen sliding back to around $4.630 on average.

Benchmark Henry Hub, meanwhile, moved higher through the period – but remained below $7.00 in even the peak winter months. December fixed prices stood Wednesday at $6.205, up 34.0 cents on the week, while the balance of winter averaged $6.193, up 35.0 cents. The summer strip rose 13.0 cents to average $4.890.

After enjoying rather comfortable temperatures in recent days, temperatures were forecast to plunge in Boston. Highs in the upper 50s on Wednesday were expected to top out in the upper 40s by Thursday and then continue falling through the weekend. Sub-freezing overnight lows were expected by Saturday before a gradual warmup next week.

Earlier this month, the CEO of New England’s largest utility, Eversource Energy, called on President Biden to enact federal emergency orders to “swiftly address the growing concerns” of the region’s access, or lack thereof, to natural gas this winter heating season. New England, which lacks the gas pipeline infrastructure to meet all of its demand, relies on gas shipments to three liquefied natural gas import facilities that serve the region.

Company chief Joseph Nolan called on Biden to waive the Jones Act of 1920, which mandates that all goods shipped between U.S. ports must be transported by U.S. flagged vessels. Such vessels must be built, owned and operated by U.S. citizens or permanent residents. 

There are currently no U.S. flagged LNG vessels, meaning LNG produced in the United States cannot be transported to LNG import facilities in the country, let alone any of the three LNG import facilities that serve New England. 

Interstate Natural Gas Association of America chief Amy Andryszak also sent a letter to President Biden this month to address “the root cause of the region’s long-standing electric reliability problems – a lack of adequate natural gas infrastructure.” In addition, leaders of the New England Independent System Operator have stressed the importance of natural gas to ensure stable power supply as it transitions to a renewable-powered grid.

Elsewhere on the East Coast, lake-effect snow was starting to intensify across northwestern Pennsylvania and western New York, according to AccuWeather. About 19 miles southeast of Buffalo, in Colden, NY, 11.6 inches of snow had accumulated in 24 hours. In the nearby town of Springville, NY, 11 inches of snow was measured as of early Thursday, while in Ohio and Pennsylvania, snowfall totals surpassed the one-foot mark. 

Even with the bitter cold in the region, though, prices paled in comparison to those farther north in New England, according to Forward Look. Transco Zone 6 NY’s December contract rose 43.0 cents during the Nov. 9-16 period to reach $5.504, while the balance of winter picked up 40.0 cents to average $5.522. The summer 2023 strip climbed 20.0 cents and averaged only $4.270, a 62.0-cent discount to Henry Hub.

A Full Recovery For Storage

On the whole, widespread price gains were seen along the forward curve, but those could prove fleeting.

NatGasWeather said weather models have been struggling about how much cold may impact the northern United States before the Thanksgiving holiday through the end of the month. Overnight, the Global Forecast System was warmer, while the European data was colder. Regardless, though, the pattern during that time is closer to seasonal rather than bullish, like it is expected to be through the next week.

The forecaster said early-season cold, including deep into Texas, already has cut into production. As a result of widespread subfreezing temperatures, the first wellhead freeze-offs of the season have dropped U.S. production by 2 Bcf/d after hitting fresh all-time highs this past weekend.

“…With power burns strong this week and into the mid-30s Bcf/d on widespread cold, the supply/demand balance is tighter,” NatGasWeather said.

As such, the forecaster noted that storage inventories, which all but erased historical deficits based on the latest data, were likely to see significant withdrawals reflected in upcoming government inventory data.

On Thursday, the Energy Information Administration (EIA) said stocks for the week ending Nov. 11 rose by 64 Bcf, likely the last injection of the fall injection season. After sitting more than 300 Bcf below the five-year average late in the summer, stocks finished the period only 7 Bcf short. What’s more, stocks rose 4 Bcf above last year’s level during the same week last year.

Broken down by region, the South Central added a plump 35 Bcf into storage, EIA said. This included a 19 Bcf build in nonsalt facilities and a 16 Bcf build in salts. East stocks climbed 17 Bcf, while Midwest stocks rose by 16 Bcf. Mountain inventories remained flat on the week, and the Pacific withdrew 6 Bcf.

Total working gas in storage reached 3,644 Bcf.

Looking forward, however, EBW Analytics Group LLC said the near-term outlook showed bitter near-term cold rapidly rebuilding storage deficits. As deficits rebuild, the market may again refocus on upside risks facing natural gas, potentially yielding upside momentum for Nymex futures pricing.

Importantly, Freeport LNG’s absence from the market puts the onus on cold winter weather to sustain pricing at these levels, according to EBW. While prices are off the double-digit peaks seen a couple of months ago, futures remain at the highest levels since 2008.

After weeks of rumors swirling in the market, EBW said its base case for Freeport’s return has shifted to January. The LNG export facility has said it planned to restart operations at the facility on the upper Texas coast in early to mid-November. That timeline has come and gone now, with Freeport not yet submitting a restart plan to federal regulators.

Media and analyst outlets also reported that Freeport has notified customers of unlikely November and December cargoes. The facility’s outage, ongoing since June, has contributed to market anxieties over the historically tight global LNG market. Speculation and unverified statements shared on social media have caused domestic gas prices to fluctuate, but Freeport as of Thursday had not put the rumors to rest with an updated timeline.

The Pipeline and Hazardous Materials Safety Administration said earlier in the month that Freeport filed its Root Cause Failure Analysis on Nov. 1, fulfilling one step in its process to meet regulators’ August consent agreement. As part of that filing, the company said it is developing testing protocols and expanding staff at the export facility after a third-party review highlighted process failures and human error as possible factors in the summer explosion.

“This is now the third delay to Freeport’s stated timetables, and further delays should not be ruled out,” EBW senior analyst Eli Rubin said. “At the same time, however, any news confirming a January restart could be interpreted as bullish by the market. If the facility secures needed regulatory approvals and accepts test gas flows in advance of a full January restart, for example, it would likely be a bullish catalyst for Nymex futures.”



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