Late Buying Spree Propels Natural Gas Futures Higher for Fifth ... - Natural Gas Intelligence
Late Buying Spree Propels Natural Gas Futures Higher for Fifth Straight Day; Cash Mixed - Natural Gas Intelligence
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Late Buying Spree Propels Natural Gas Futures Higher for Fifth Straight Day; Cash Mixed
In a display of technical trading at work, natural gas futures spent the majority of Tuesday’s trading session firmly in the red before a late rally sent the April Nymex gas futures contract 1.6 cents higher day/day to $2.747/MMBtu. May futures tacked on a penny to $2.863.
At A Glance:
- Will it be cold in March?
- Supply cuts seen needed
- West Coast cash up on storms
Spot gas traded mostly sideways across the country, but big swings were seen on the West Coast and in the Northeast. NGI’s Spot Gas National Avg. slipped 21.5 cents to $3.230.
Though weather demand is expected to be light for the remainder of the week, the longer-range models show cold air over the northern Plains spreading south and eastward late this week. Overnight temperatures could dip close to zero in some areas, with chilly air likely penetrating deep into Texas and portions of the South, according to NatGasWeather.
This could be why prices ultimately strengthened day/day, though the weather models had been pointing to this pattern even as Tuesday’s Nymex session got under way. At one point, the prompt month had fallen to a $2.568 intraday low in the face of the chillier forecast.
A brief break between cold shots is expected over the eastern half of the country early next week before additional cold shots follow March 8-14, according to NatGasWeather. These additional blasts should result in stronger-than-normal national demand, but there are some discrepancies in the weather data that need to be reconciled. The forecaster said the European model is notably colder than the Global Forecast System. What’s more, the European data also shows widespread below-normal temperatures over much of the Lower 48 for the March 15-25 period.
“There’s been other data suggesting cold might not hold as strongly March 15-25, suggesting changes are possible in time,” NatGasWeather said.
At the same time, the key South Central region sits at very high storage levels. This becomes “problematic” if the upcoming pattern fails to deliver any notable chill into the southern United States, according to the firm.
The potential for a chilly end to the official winter season for the natural gas market is lending some support overall to prices. After briefly slipping below $2.00 last week, analysts said a return to $3.00 gas is not out of the question.
That’s because there are a few other notable factors that may provide additional uplift to prices.
On the demand side, coal-to-gas switching in the power sector has accelerated in recent weeks given the lower price environment.
Freeport LNG also continues to ramp up operations. The liquefied natural gas export terminal this week asked federal regulators for approval to begin commercial operations from Train 1.
Train 3 has been safely restarted and is in full commercial operations producing LNG. Train 2 also is in the process of restarting after the Federal Energy Regulatory Commission granted those approvals last week. Once fully operational, Freeport would produce 2.38 Bcf/d of liquefied natural gas at its facility on the upper Texas coast.
On the supply side, the lower price environment also is prompting producers to adjust their production profiles for the year. For example, Comstock Resources Inc. said it would lay down two rigs from its Haynesville Shale drilling program. Chesapeake Energy Corp. also plans to drop two rigs in the Haynesville, one by the end of March and another rig in the third quarter. Southwestern Energy Co. guided to running 10-11 rigs between its Haynesville and Marcellus acreage, down from 13 total rigs in 2022.
East Daley Analytics expects the ArkLaTex Basin in the Haynesville to ultimately play a key role in restoring balance as producers slow drilling and completion activity. The consultancy said ArkLaTex rig counts averaged 71 in January and were at 74 rigs in mid-February. Comstock and Chesapeake together account for around 22% of the rigs in East Texas and northern Louisiana, according to the firm.
“Our Macro Supply and Demand Forecast projects that overall drilling activity in the basin will need to fall to 60 rigs by mid-2023 to slow supply and keep underground storage within facility limits by 4Q2023,” East Daley said. “Larger public operators in the ArkLaTex like Comstock and Chesapeake were generally well-hedged heading into 2023, so we expect large private operators” like Aethon Energy Management LLC and Rockcliff Energy to drop many of the rigs this year.
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Even with the dropped rigs, producers would need to take other proactive measures to balance the market, according to East Daley. The firm assumes lower prices could prompt Haynesville operators to defer completions and build an inventory of more than 300 drilled but uncompleted wells. Other gas-focused basins should see a similar slowdown to bring supply back in line with demand in 2023. DUCs are at historically low levels as most of the production brought online over the past year came from these wells.
“With growth from the Permian Basin likely locked in this year, we view the ArkLaTex as a critical source of swing supply due to the highly productive gas wells drilled in the Haynesville and Bossier shales,” East Daley said.
Sinking Northeast Cash
Spot gas prices were relatively stable on Tuesday amid light demand across large swaths of the country.
Benchmark Henry Hub cash fell 5.0 cents day/day to average $2.510 for Wednesday’s gas day. Transco Zone 5 slipped 1.5 cents to $2.565, while in Appalachia, Eastern Gas South ticked up 4.0 cents to $2.150.
Northeast prices posted sharper declines ahead of another major winter storm set to arrive later this week in the region. Algonquin Citygate plunged $3.975 day/day to average $3.140, and Iroquois Zone 2 shed $2.590 to average $2.795.
The sell-off in Northeast prices could prove to be brief. AccuWeather said the upcoming storm would be complex, where one center of low pressure would track northeastward into the Midwest and weaken from Thursday night to Friday before a secondary low pressure area forms along the Mid-Atlantic coast and heads northeastward over the ocean on Friday.
“It’s not the coldest air mass we have ever seen, but it is cold enough to get the job done,” AccuWeather senior meteorologist Joe Lundberg said.
Forecasters said how quickly the secondary storm forms and strengthens over the Atlantic would determine how far warm air from the South may extend into the Northeast Friday.
If the storm ramps up quickly and creates a stubborn wedge of cold air, it could be enough to bring several inches of snow around the New York City area, according to AccuWeather. However, because the coastal storm may be slow to organize and strengthen, there is likely to be a transition to a wintry mix and rain by Friday night around the city’s five boroughs. Snow amounts of up to three inches are most likely Friday, while Boston could receive up to four inches of snow with heavier amounts to the north and west of the city from Friday to early Saturday.
Meanwhile, the West Coast continued to see strong storms with heavy amounts of snow that were expected to spread over the Southwest and Rockies in the coming days. As such, prices there remained elevated and continued to tack on moderate increases on Tuesday.
Opal spot gas was up $1.055 on the day to $8.060, and KRGT Del Pool was up 75.0 cents to $8.165. Malin cash jumped $1.235 to $8.295.
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