Natural Gas Forwards Retreat on Warm Early February, Though Basis Strengthens Out West
Facing bearish weather headwinds into early February, regional natural gas forward prices generally drifted lower during the Jan. 18-24 trading period, NGI’s Forward Look data show.
Amid a return to the unseasonably mild temperatures that dominated forecast maps prior to a mid-January Arctic cold blast, fixed prices at numerous hubs impacted by the deep freeze saw notable declines. Losses were especially pronounced at the front of the curve in many instances.
In the Midwest, Chicago Citygate fixed prices tumbled 60.6 cents for February to end the Jan. 18-24 period at $3.159/MMBtu. Over in the Midcontinent, Northern Border Ventura plunged $1.056 to finish at $4.009 for February.
In New England, Tenn Zone 6 200L February fixed prices dropped $1.034 for the period to $8.049.
Near-month losses at a number of locations outpaced the declines at benchmark Henry Hub, which shed 22.8 cents for February to fall to $2.663.
Several Northeast demand hubs, including Tenn Zone 6, Algonquin Citygate and Transco Zone 6 NY, also saw notable weakening in basis differentials for winter 2024/25 contracts, Forward Look data show.
The mid-January deep freeze across much of the Lower 48 made a sizable dent in the Lower 48 storage buffer, but impacts from the extreme cold were set to be “completely offset by one of the warmest patterns of the past 50 years,” NatGasWeather said in an updated discussion of the 15-day temperature outlook Thursday.
The most recent weather data maintained “an exceptionally warm/red/bearish setup” through Feb. 8, “especially so over the northern and eastern U.S.,” NatGasWeather said. Temperatures were expected to climb to 15-30 degrees above normal, “and with very little coverage of subfreezing highs, a rarity for late January into February.”
Forecasts advertised colder weather systems impacting western portions of the country early next month, but these were likely to “struggle advancing into the important eastern half of the U.S. as a stubborn warm ridge holds strong,” according to the firm.
Western Basis Mark-Up
Despite the broader downward pressure on Lower 48 natural gas prices, basis strengthening was the prevailing theme in the Western Lower 48 for the Jan. 18-24 period, led by hefty mark-ups across the strip at the perennially constrained SoCal Citygate.
Basis differentials at the Southern California hub jumped by around $1 or more for each month throughout the upcoming injection season.
Week/week gains were largest for August, with basis surging to plus-$4.940, a $1.908 swing higher.
An updated system maintenance outlook for February posted to the Southern California Gas (SoCalGas) electronic bulletin board listed a number of planned maintenance events that could restrict capacity on the operator’s system in the coming months.
This included a hydrotest on Line 4000 that would reduce capacity on the SoCalGas Northern Zone by 555 MMcf/d between April 1 and Oct. 30, according to the document.
The Southern California market has been no stranger to infrastructure constraints driving up premiums. The bid under 2024 basis differentials during the Jan. 18-24 period suggested traders were bracing for history to repeat itself once again.
Basis differentials also strengthened at a number of other western Lower 48 hubs during the period, particularly for peak summer 2024 contracts and for winter 2024/25.
Opal basis rallied 48.8 cents for August to end at an 83.3-cent premium to Henry Hub. August basis at Northwest Sumas surged 46.2 cents to plus-83.2 cents.
Too Early To Write Off Winter
After plummeting on the blowtorch-warm late January and early February temperature outlook, Nymex futures showed signs of finding a bottom earlier in the week, bouncing off of lows in the $2.300 vicinity.
Prices pulled back on Thursday following a 320 Bcf withdrawal from the latest U.S. Energy Information Administration (EIA) storage report. The print, accounting for the widespread impacts of the recent Arctic blast, ranked as one of only three withdrawals 300 Bcf or greater in magnitude on record going back to 2010.
Still, the withdrawal figure failed to offer any surprises when compared to the market’s lofty pre-report expectations.
The soon-to-expire February Nymex contract fell 7.0 cents Thursday to settle at $2.571. March settled at $2.180, off 8.2 cents.
Recent forecasts suggested a “resolutely bearish” weather outlook, but it’s still too soon to write off winter, according to EBW Analytics Group analyst Eli Rubin.
The month of February has delivered disruptive winter weather events in recent years, and next month could serve up “another massive February cold event” that could reshape the supply/demand outlook, the analyst said.
“While underlying fundamentals appear oversupplied — the market is likely to carry both a hefty storage surplus and record production into the 2024 injection season — winter weather can quickly pare down anticipated storage risks,” Rubin said. “Just as calling the end of winter in mid-December would have missed the early January Nymex charge higher, suggesting the end of winter in mid-to-late January may similarly prove premature.”
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