Coastal Discounts Overshadow Modest Natural Gas Forward Price Gains Elsewhere in Lower 48
Mixed trends in regional natural gas forwards trading for the Oct. 26-Nov. 1 period saw prices climb modestly for much of the Lower 48, though mild early winter forecasts put pressure on coastal demand hubs, particularly at the front of the curve.
According to NGI’s Forward Look data, fixed prices for December delivery at benchmark Henry Hub rose 11.7 cents week/week to $3.499/MMBtu, and gains of a few pennies to a dime were common through the middle third of the Lower 48.
Volatility continued out West, where Southern California prices posted steep discounts for a second straight week as generally balmy temperatures deflated risk premiums for a market still wary of potential price spikes.
Numerous other western Lower 48 hubs saw hefty basis swings, with premiums shedding $1-plus for multiple winter contracts in several spots.
Early winter forecasts also seemed to remove some of the fear from markets along the East Coast. A couple of New England hubs, in particular, posted discounts across the winter strip but weighted toward the front of the curve; farther south, Transco Zone 5 failed to keep pace with Henry Hub week/week, resulting in basis declines across the winter strip.
Updated projections from Maxar’s Weather Desk as of Thursday showed little indication of the kind of threatening cold that would stoke supply adequacy fears at this stage of the heating season.
Changes were in the warmer direction for the Midwest to the South, a result of less cooling expected during the second half of the six- to 10-day period, running from Tuesday through Nov. 11, the forecaster said.
Temperature projections leaned somewhat cooler for the western Lower 48 but remained “within a few degrees of normal,” Maxar said.
For the 11- to 15-day period, the outlook continued to show “below normal temperatures early in the East and an expanding coverage of above normal temperatures from the Interior West toward the Midwest and South,” Maxar said. “The East likewise shares in the warming pattern as temperatures return to normal in the second half of the period.
“The models are in good agreement for a warmer pattern during this period, with support also coming from sea surface temperatures,” Maxar added.
Along similar lines, NatGasWeather on Thursday pointed to “sharply warmer” model trends over the previous two days, including degree day losses in the most recent midday run of the American model.
The latest model data extended warmer trends for a cold shot expected to impact the Midwest and Northeast late in the week ahead, showing the system as “just a glancing shot” that would not push “nearly as deep into the U.S.” compared to projections from earlier in the week, NatGasWeather said.
Weather data also pointed to warmer temperatures “gradually gaining over large stretches of the U.S. Nov. 12-16 for a return to lighter than normal national demand,” the firm said.
Western Volatility
Factoring in a comfortable regional storage outlook and potentially widespread coverage of moderate temperatures well into November, regional forward traders locked in discounts throughout the West.
Still, prices continued to trade at hefty basis premiums overall. Even with Henry Hub down sharply year/year, fixed prices for winter delivery at western demand hubs have been trading near or above levels observed in the year-earlier period for the 2022/23 winter contracts, Forward Look data show.
For example, SoCal Citygate January basis shed $1.687 to end the Oct. 26-Nov. 1 period at plus-$6.174. Even after plummeting week/week, that’s close to double the January 2023 basis premium of just over $3 recorded in late October 2022.
Forecasts from Maxar showed Burbank, CA, experiencing warmer to near-normal temperatures through the first third of November, with Seattle in the Pacific Northwest similarly on track for normal to warmer-leaning early season conditions.
This comes as U.S. Energy Information Administration data showed storage in the Mountain and Pacific regions ending the Oct. 27 period at surpluses to five-year norms. This represents a strong recovery from steep deficits at the start of the 2023 injection season.
Meanwhile, a recent spell of cold weather on Halloween highlighted a disparity between Rockies prices amid constraints in moving gas to premium markets along the West Coast, analysts at East Daley Analytics said in a research note.
The firm noted a widening spread between prices at Opal and Cheyenne Hub during the cold blast. According to Daily GPI historical data, Opal day-ahead prices peaked at $5.800 on Oct. 30, up 36.5 cents from the previous session; Cheyenne Hub rose to $3.165 that day, up 28.0 cents.
“The West Coast has been intermittently short natural gas supply for the last few years, leading to a wide spread between eastern and western Rockies prices,” East Daley analysts said. “While there is sufficient capacity to bring gas to the Wamsutter area on pipelines like Rockies Express, there is not enough capacity to move gas further west to the Opal hub in southwestern Wyoming.
“Opal has connectivity to the Southern California market via Kinder Morgan’s Kern River Pipeline, causing the point to trade at a premium when West Coast prices surge,” the East Daley analysts added. “The constraint should be loosened in 2026 when Williams plans to complete the 325 MMcf/d expansion of Overthrust Pipeline.”
Mixed Futures
With traders checking forecasts and reading tea leaves to try to get a read on winter weather, Nymex futures saw mixed trends over the past week. A huge rally Tuesday preceded negative sessions for the December contract on both Wednesday and Thursday.
December dropped 2.2 cents to settle at $3.472, off the session lows following a generally supportive print from the latest EIA storage data.
EBW Analytics Group analyst Eli Rubin on Thursday noted recent projections from forecaster DTN that, if realized, would suggest further downside for natural gas heading into November.
DTN projections for the storage week ending Nov. 23 indicated “sharply warmer weather across the Midwest and Northeast into Thanksgiving,” resulting in lighter than normal heating demand.
“DTN notes relatively high confidence in the warmer pattern and warns that risks lean in a warmer direction that could further narrow heating demand,” Rubin said. “…At current pricing, natural gas storage could remain near 3,775 Bcf into Thanksgiving.
“From a market perspective, the expected lack of weather-driven gas demand could further challenge the ability of the December contract to retain recent gains.”
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