What a week – and what a year – it has been for the natural gas market. During the final three trading days for 2022 gas supplies, spot prices fizzled out in grand fashion after spikes caused by Winter Storm Elliott. Losses were widespread, sending some US sites back below $3.00/MMBtu, with NGI’s Weekly Spot Gas National Avg. a sharp drop from $7.185 to $6.510.
Futures also declined. The January Nymex contract rolled off the board at $4,705 just days after Elliott took around 15 Bcf of US production offline and caused rolling power outages in parts of the Southeast.
The February Nymex contract made its own noise, plunging to $4.475 by Friday as forecasts of continued warming in the days since Elliott exited the Lower 48 trumped overwhelmingly bullish store data. February futures slipped 21.0 cents at the front end of the curve for the first two days.
The rapid rise in temperature following the Arctic blast that went deep into the Lower 48 has devastated both spot and futures markets alike.
The biggest cash declines occurred on the West Coast, where prices fell more than $20.00 week-on-week in some locations. Interestingly, prices remained at a significant premium versus other US locations on Thursday (Dec. 29), despite the sharp declines.
In the Rocky Mountains, Northwest Sumas cash averaged $12.85 during the December 27-29 trading period after falling $21,620 on the week. In California, SoCal Citygate fell $15,925 to $21,530, while PG&E Citygate fell $16,610 to $22,205.
The continued rise in West Coast prices is due to an atmospheric moisture flux targeting the region. AccuWeather said the sizeable storm would bring heavy rain, which should fill in the reservoirs and generate heavy snow on the mountains by the New Year’s weekend. Though a long train of Pacific Ocean storms would continue to roll ashore through early January, there is a chance the big storm could unload up to 16 inches of rain in a narrow zone across northern and central California in the last few days of 2022.
Elsewhere, as the east coast began to thaw from the freezing conditions that plagued the region over the Christmas holiday, cash prices plummeted accordingly. Transco Zone 6 non-NY fell $11,810 week-on-week to average $4,820. Algonquin Citygate fell $10,400 to $8,745.
Several other US locations saw prices fall by just a few dollars this week, while Chicago Citygate fell $5,755 to average $4,080 and Northern Natural Demarc fell $9,840 to $3,930.
falling future
In a week of thin liquidity, futures struggled to maintain the momentum they had gathered just after the long Christmas break. Though the Arctic blast that swept across the country wreaked considerable havoc on the energy complex, projections of rapid warming lasting at least through mid-January shattered the future.
NatGasWeather said record heat is likely through Jan. 9, with only slightly cooler weather systems expected over the Great Lakes and Northeast Jan. 10-15. While demand should get a small boost from these cold snaps, it would be far from strong as most of the rest of the United States is forecast to remain near warmer than normal. The only weather below freezing is expected near the Canadian border.
“How long this warmer-than-normal pattern persists is of significant interest,” NatGasWeather said. “Weather data better shows the potential for colder patterns for the second half of January, or it could lead to further disappointments.”
To that end, the company noted that the longer-term forecast data from the European Center did not show a more intimidating pattern for late January and early February. Instead, warm air is preferred over most of the Lower 48.
In addition to laying the groundwork for a steady increase in production after freezes, blowtorch conditions should quickly ameliorate the supply dip caused by the winter storm.
On Thursday, the US Energy Information Administration (EIA) reported a withdrawal of 213 Bcf from storage inventories for the week ended December 23. This was the first indication of Elliott’s influence on the balance between supply and demand, and it did not disappoint.
The three-digit draw was at the high end of expectations ahead of the EIA report. The wide range of estimates reflected the uncertainty of the impact of the winter storm.
A Reuters poll of 11 analysts returned a range of withdrawal estimates from 169 Bcf to 218 Bcf, with a median drop of 199 Bcf. Bloomberg had a slightly tighter range but also had a median draw of 199 Bcf, while a Wall Street Journal survey found an average pull of 201 Bcf. NGI modeled a withdrawal of 199 Bcf.
The latest EIA number is “a difficult number to extrapolate…not going down in my opinion,” said a participant on Enelyst, an online energy chat. “I’m not sure it means much.”
Other Enelyst participants agreed that the 213 Bcf pullback indicated the market was tighter than expected. However, they found that the pull from South Central’s salt stocks was falling short of forecasts. Given the cold weather that hit Texas towards the end of the reference period, they said stronger draws should be reflected in next week’s EIA report.
At a regional level, the Midwest led with a monstrous 75 Bcf withdrawal from inventories, according to the EIA. South Central followed with a net deduction of 63 Bcf which included a 45 Bcf deduction from non-salt assets and a 17 Bcf deduction from salts. East stocks fell 42 Bcf while Pacific stocks fell 21 Bcf. Mountain stocks fell by 12 Bcf.
Total stored working gas fell to 3,112 Bcf, according to the EIA, which is 133 Bcf below last year’s level and 85 Bcf below the five-year average.
Looking ahead to the next EIA report, NatGasWeather said a much larger than normal draw of 235-250 Bcf is expected. However, the current wave of mild weather should soon bring inventories back to near the five-year average.
“It’s going to be a dangerous long weekend as natural gas markets are closed Sunday/Monday for the Lunar New Year holiday,” NatGasWeather said. “If weather data doesn’t show colder/bluer maps post-weekend, prices could remain under pressure while colder trends would be welcome and likely see bulls buy the pullback.”
Waha plunges to record low
Boasting robust supply fueled by liquid-focused drilling activity, coupled with a lack of pipeline capacity, Permian prices came under severe pressure on the last trading day for 2022.
Waha gas, scheduled for delivery Sunday through Tuesday, was trading firmly in negative territory on Friday. Prices ranged from minus $1,000 to minus $10,000 and averaged minus $3,865, less than $3,005 per day.
Likewise, other West Texas locations recorded sub-zero prices. El Paso Permian was down $3,025 on the day to average -$3,800 and Transwestern was down $2,325 to average -$3,115.
This is not the first time Permian prices have dipped into negative territory. Such prices first appeared on the market in the spring of 2019, when production increased and pipeline capacity became tighter. Waha, for example, averaged minus $5,750 in April, five months before Kinder Morgan Inc.’s Gulf Coast Express (GCX) pipeline project went online.
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Price relief followed immediately but didn’t last.
In the fall of 2020, a few months before Kinder Morgan’s second Permian line — the Permian Highway Pipeline — went online, regional cash prices turned negative again.
Up until this year, Permian prices remained largely in positive territory after PHP and another line, Whistler Pipeline, came online. With high oil prices fueling Permian drilling activity, associated gas has flooded the market. This, in turn, has caused the pipelines to fill up.
To make matters worse, GCX alerted customers Thursday that maintenance work at the Devil’s Run compressor station, which began Wednesday, would be extended until further notice. This leaves the total capacity of the pipeline limited to 145,000 MMBtu/d.
Elsewhere in the country, the continued softness extended across most regions. In the middle continent, $2.00 handles have been seen in a handful of locations. OGT cash fell 37.5 cents on the day to average $2.360, while Southern Star slipped 65.0 cents to $2.825.
Henry Hub Cash averaged $3,550 after falling 14.5 cents on the day and Tenn Zone 1 100L averaged $2,575 after falling 45.0 cents.
On the west coast, the recent wet weather pattern should continue, according to the National Weather Service. This should keep demand high as temperatures struggle to rise.
Spot gas prices in Northwest S. Green River increased $8,345 day/day to average $13,745 and El Paso S. Mainline/N. Baja rose $2.945 to $16.52.
Similarly high prices were seen in California, although prices remained below $20.
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