March Nymex natural gas futures sank another 8.0 cents as the market searched for a low that would coax producers to trim output amid dashed hopes for enough cold weather to tighten supplies ahead of the shoulder season.
At A Glance:
- March futures crumble 8.0 cents
- No demand support from weather
- Producer signals strong output
The prompt-month contract settled the Wednesday regular trading session at $1.609/MMBtu. March futures cratered to a three-and-a-half-year low of $1.590 before inching off the mark to the slightly higher finish.
NGI’s Spot Gas National Avg. slid 30.0 cents to $1.660 amid a respite from brief periods of cold weather.
“We’ve managed to lose enough heating degree days (HDD) in the last few days to push this winter to the warmest ever,” said Corey Lefkof, a consulting meteorologist with CLWS LLC. “What was once looking like a promise of blocking and some colder skew is now vanished,” Lefkof said in a discussion on the online energy platform Enelyst.
Weather outlooks continued to disappoint as the latest forecasts cut HDDs from the near-term and mid-range outlooks.
Maxar Weather Desk meteorologist Bradley Harvey said another round of potentially heavy rain and mountain snow is expected in California in the upcoming six to 10 days, bringing temperatures within a few degrees of normal.
However, outlooks turned warmer from Tuesday for the Rockies, Plains, and Midwest, where above and much above normal temperatures are forecast. In the East, Harvey said that slightly above average temperatures are expected early in the period before “unsettled conditions” arrive.
Longer-range, the 11-15 day outlook features a Pacific flow pattern, with a trough that looks to bring rounds of wet weather to the Pacific Northwest with temperatures that are near normal to slightly below average along the West Coast, Harvey said. Warmer conditions are expected into the Midcontinent, where warm changes from Tuesday’s outlook outlined temperatures of above to much above normal.
The East shares in the above average temperatures during the second half, after normal readings follow a storm system late in the 6-10 day period, Harvey said.
Demand for natural gas for heating purposes, depressed by mild weather throughout the heating season, remained that way Wednesday. Wood Mackenzie data showed residential and commercial sector demand at 38.6 Bcf/d Wednesday, primarily steady on the day, while power sector demand slipped a few notches from 34.3 Bcf/d to 32.8 Bcf/d day/day.
Analysts with NatGasWeather said, “A hotter versus normal summer is expected over large stretches of the country for much above cooling degree days,” providing an opportunity for natural gas surpluses to be reduced ahead of next year’s La Niña winter.
“But until weather patterns become more cooperative, it’s difficult to know how low natural gas prices go,” the firm said.
More downside is expected Thursday when the U.S. Energy Information Administration (EIA) releases its latest storage data for the week of Feb. 9.
Storage Disappointment Likely
After modeling a 75 Bcf withdrawal from natural gas stocks for the week of Feb. 2, which matched the reported pull, NGI modeled a 68 Bcf drawdown for the next EIA print. A Reuters survey showed a range of outlooks from draws of 87 Bcf to 51 Bcf, with the average matching NGI’s at 68 Bcf.
That compares with a withdrawal of 117 Bcf the same week a year ago and a five-year average decrease of 149 Bcf.
Natural gas inventories stood at 2,584 Bcf on Feb. 2, 248 Bcf above the five-year average, according to EIA data. A pull within market expectations for the week of Feb. 9 would further erode the storage overhang and feed bearish market sentiment.
Further, early estimates for the week ending Feb. 16 ranged from withdrawals of 62 Bcf to 98 Bcf, with an average decrease of 82 Bcf, which would compare with a withdrawal of around 75 Bcf during the same week last year and a five-year average decrease of about 168 Bcf. The longer-range outlook points to additional price erosion.
Analysts with the independent investment bank Houlihan Lokey attempted to put the situation into perspective, as NGI’s Henry Hub spot price average was $1.510 Wednesday, down 15.5 cents day/day.
“A year ago, as Henry Hub prices were greater than $6.000, domestic inventories were about 6% below the five-year average, drained by exports to Europe and a sweltering summer,” the firm said in a fourth quarter 2023 oil and gas market update.
Demand Versus Production
European LNG demand remains strong, NGI associate editor Jacob Dick said.
“Overall gas consumption has been soft and declining as Euro industrials have taken a hit,” Dick said. “But the EU’s storage requirements have meant U.S. exports to Europe have continued to grow even as prices have tanked to a three-year low.’
Dick said, “U.S. exports to Europe as a whole even increased last year while overall imports on the continent dropped a little.”
Liquefied natural gas flows to U.S. LNG facilities were at 13.77 Bcf/d at midweek from 13.83 Bcf/d a day earlier and 14.07 Bcf/d to start the week, according to NGI’s U.S. LNG Flow Tracker.
What the market is currently seeking for support — and not yet hearing from producers — are signals of a production slowdown to help tighten the natural gas supply.
Jeremy Knop, CFO of EQT Corp., an Appalachian pure-play and the nation’s largest gas producer, told financial analysts on a Wednesday earnings call that despite current prices, the company isn’t ready to pull back the reins any more than it already has.
“We continue to be really bullish,” Knop said.
Lower 48 natural gas production was at 104.3 Bcf/d on Wednesday, nearly flat to 104.8 Bcf/d a day earlier, according to Wood Mackenzie data.
Spot Gas Tumbles
The price of natural gas traded for Thursday delivery at most hubs across the country came under pressure from milder weather expected ahead of another brief blast of cold.
Following a Nor’easter that dumped more than a foot of snow in some portions of the Northeast on Tuesday, milder weather expected Thursday drove cash gas deals at Transco Zone 6-non NY 68.0 cents lower day/day to an average of $1.320. Algonquin Citygate deals tumbled $2.500 to $3.335.
The Northeast Regional Avg. remained the highest among all regions at $2.850, despite a $1.465 day/day retreat, while the W. TX/SE NM Regional Avg. at 96.0 cents, down 17.5 cents on the day, remained the lowest.
