A new year brought a new outlook to regional natural gas forwards markets during the Dec. 28-Jan. 3 period, NGI’s Forward Look data show.
Coming off a balmy December, forecasts during the period teased the arrival of markedly more winter-like conditions through this month, and traders responded by locking in double digit near month fixed price gains across the Lower 48.
February fixed prices at benchmark Henry Hub jumped 22.4 cents for the period to reach $2.682/MMBtu.
[Market Dynamics: Listen in as NGI digs into the myriad pieces that make up the winter supply/demand puzzle and how they may impact prices through the heating season and beyond. Tune into the Hub & Flow podcast now.]
Has Winter Finally Arrived?
Forward gains were especially pronounced in the western Lower 48, where traders have shown sensitivity to upside risks in the wake of price spikes during the 2022/23 winter.
Basis premiums at hubs including Northwest Sumas, Malin, Opal, PG&E Citygate and SoCal Citygate all swelled notably for February and March during the Dec. 28-Jan. 3 period.
Northwest Sumas February basis more than doubled week/week, surging from plus-$1.399 to plus-$2.922, Forward Look data show.
Still, winter basis premiums across the West, as with many other Lower 48 hubs, remained sharply lower winter-to-date. For reference, Northwest Sumas February basis was trading at plus-$4.908 at the start of November, Forward Look historical data show.
Recent forecast maps suggested the western half of the Lower 48 could see widespread coverage of colder-leaning temperatures heading into mid-January.
Maxar’s Weather Desk, in its updated six- to 10-day forecast on Thursday, for Tuesday through Jan. 13, showed warmer-leaning temperatures blanketing the East for the period.
“Alternatively, below to much below normal temperatures are steady in the West and expand in coverage to the Plains and Midwest at the end of the period,” Maxar said.
Farther out in the 11- to 15-day period, covering Jan. 14-18, Maxar observed a cooler-trending outlook for the eastern half of the country.
“While the models have lacked consistency in the position of a ridge near Alaska, it is still a colder signal directing much to strongly below normal temperatures from Western Canada toward the Midwest, with the coldest of the forecast for the Midwest being from early to mid-period,” the forecaster said. “Below normal temperatures expand to the East Coast during the second half, when slight aboves return to the Southwest.”
Gains at a number of Midwest and Midcontinent hubs also outpaced the increase at Henry. Chicago Citygate February basis rallied to plus-44.6 cents, a 17.5-cent gain for the period. Northern Natural Ventura surged 37.7 cents to plus-$1.362 for February.
On the other hand, the colder January outlook still did not tease the kind of impressive chills needed to sustain basis mark-ups in the Northeast. Transco Zone 6 NY February basis sold off 33.6 cents to end at plus-$2.408.
NatGasWeather on Thursday cautioned that models could continue to see large changes in either direction from one run to the next, particularly in the outlook for mid-January.
The Jan. 14-20 time frame could prove pivotal “as frosty air holds over Southwest Canada, providing opportunity to release into the western and central U.S.,” NatGasWeather said. However, colder temperatures could “continue struggling to advance far enough into the East to fully intimidate.”
A Brighter Outlook for Bulls?
Nymex futures rallied for the Dec. 28-Jan. 3 period as markets responded to the prospect of more robust January weather-driven demand. Traders shrugged off a bearish miss from the latest U.S. Energy Information Administration storage report Thursday to send the February contract surging to a $2.821 settle, up 15.3 cents day/day.
The near-term outlook for natural gas prices has been “brightening” on a combination of “colder mid-January risks, ebbing production” and the prospect of shrinking storage surpluses, according to EBW Analytics Group analyst Eli Rubin.
Comparing storage withdrawals against gas-weighted heating degree days, the supply/demand balance in December was “already modestly tight on a weather-normalized basis amid elevated coal-to-gas switching,” Rubin said. “If cold weather further erodes surpluses, higher prices are likely.
“Still, we caution that the long-term outlook is substantially oversupplied, with both sizable outstanding inventory surpluses and associated gas supply growth later in the storage cycle — weighing heavily on Nymex pricing,” Rubin added.
Supply and demand estimates from Wood Mackenzie Thursday had production dropping to 104.6 Bcf/d, lagging both the prior seven-day average (105.3 Bcf/d) and the 30-day average (106.1 Bcf/d).
Feed gas demand for liquefied natural gas climbed to 14.7 Bcf/d in the firm’s daily estimate, versus a recent seven-day average of 14.4 Bcf/d.
Looking at the power sector, low natural gas prices could contribute to continued weakness in coal-fired generation, which underperformed in 2023, according to Wood Mackenzie analyst Colette Breshears.
“After a couple of years of depleted stockpiles and supply line constraints, North American coal generation units find themselves over-contracted and oversupplied with coal, with some deferring additional deliveries until space is available,” Breshears said. “Despite this current oversupply, high gas storage levels and continued high gas production are expected to keep gas-fired generation very competitive to outperforming.”
Coal-fired generation in 2023 came in “at levels well below average, suggesting that coal-to-gas and coal-to-renewables switching was already persistent,” the analyst added.
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