Technicals, Bump in Heating Demand Lift Natural Gas Futures, But Cold Still Seen as 'Broken Promise' - Natural Gas Intelligence

Technicals, Bump in Heating Demand Lift Natural Gas Futures, But Cold Still Seen as ‘Broken Promise’ - Natural Gas Intelligence
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Technicals, Bump in Heating Demand Lift Natural Gas Futures, But Cold Still Seen as ‘Broken Promise’

Natural gas futures recovered a bit on Tuesday as some heating demand was added back to the 15-day forecast. With some technical support also in play, the April Nymex gas futures contract settled at $2.687/MMBtu, up 11.5 cents on the day. May futures climbed 11.0 cents to $2.840.

At A Glance:

- GFS model trends cooler
- 4.0 Tcf end-October possible
- Cash mixed amid pipe work, cold

Spot gas prices were mixed, with the West and East coasts continuing to steal the show. NGI’s Spot Gas National Avg. dropped 28.0 cents to $3.165.

Overall, the coming pattern is still relatively cold compared to normal over much of the United States the next 15 days, just not as chilly as originally projected, according to NatGasWeather. The southern half of the country should continue to see high temperatures in the 60s to 80s, while the western and northern states are expected to be “cool to cold” as weather systems track through with rain and snow, the forecaster said.

Stronger demand is likely next week as additional weather systems sweep across the country, including deeper into the South. For now, the pattern is still to the bullish side as lows could plunge near zero in some areas, according to NatGasWeather. However, the intensity of cold backed off over the weekend and was held in recent data, even with the Global Forecast System adding a handful of heating degree days back into the forecast.

In addition, major weather models show only slightly colder-than-normal temperatures at forecast days 14-16, while Monday’s longer-range European model showed chilly conditions only over the northern half of the country for late March. This is off from more intense cold in prior runs, according to NatGasWeather.

“Essentially, the coming pattern will still drive decent demand but not expected to be much stronger than normal like what was advertised by the weather models late last week,” the firm said.

‘Broken Promise’

Mobius Risk Group said the most consistent theme for the North American natural gas market this winter has been the “broken promise of colder temperatures, and thus slashed expectations for heating demand.” The latest version included a whopping 60 Bcf of demand erased from market expectations, which “understandably put Nymex prices decidedly on defense,” according to Mobius.

What’s more, along with the warmer outlook for the Lower 48, weather forecasts in Europe and Asia “also made an about face” from what was predicted for most of the past week. With European storage still hovering near the top of the five-year range, these warmer-than-normal forecasts were enough to overwhelm a Reuters report that the Nord Stream pipeline is set to be mothballed, according to Mobius.

“Without the prospects for material late season heating demand that were promised last week, odds are increasing that the first bullet month of the upcoming injection season will expire somewhere in the $2.00-$3.00 range, which is not unfamiliar territory for the market,” Mobius’ Zane Curry, director of markets and research, said.

Consumption in the power sector remains robust, net flows from Canada and to Mexico are trending in a bullish direction and dry gas output remains stagnant versus the fall, according to the consultancy. These all are supportive drivers for the gas market. However, in spite of the bullish undertones, Mother Nature has pushed end-of-March inventory projections back over the 1.9 Tcf mark for most analysts and market observers.

“Without either A) a hot summer or B) almost immediate changes in production levels, the 4 Tcf threshold will be in play,” by October, Curry said.

Mobius noted, however, that the return to the $2.50 price range is not a promise of what is to come in the weeks ahead. With a “remarkable incentive to front-load injections,” there may very well be a “buy the front, sell the back” trade in the coming weeks or months.

“This is not to say that the balance-of-2023 curve will be higher, but rather risks to the second quarter 2023 versus 4Q2023 become directionally opposite – and potentially asymmetric dependent on weather,” Curry said.

Cash Losses On East, West Coasts

Spot gas prices posted modest gains on Tuesday amid robust power burns, but they were overshadowed by ongoing volatility on the West and East coasts.

Huge losses were seen in those regions even as conditions remain unsettled, according to the National Weather Service (NWS). The forecaster said a persistent series of lows off the northwest Pacific coast would help to encourage nearly continuous lower elevation valley/coastal rain and higher elevation mountain snow chances for the Pacific Northwest and Northern California.

Heavy snow was forecast for the northern coastal ranges and Sierra in California, with additional snow showers possible for the Northern/Central Rockies on Wednesday.

Temperatures, meanwhile, would remain unseasonably cool over most of the West, according to NWS forecasters. Highs were expected in the 20s and 30s for the Northern/Central Rockies and Great Basin, 40s for the Pacific Northwest and 50s for California. Portions of the Southwest and Southern Rockies would be some of the only warm spots for the West, with highs in the 60s and 70s.

With a gradual warmup ahead, though, Stanfield next-day gas tumbled $1.430 day/day to average $7.990 for Wednesday’s gas day. KRGT Del Pool cash was down 65.0 cents to $8.665.

In California, the Southern Border, PG&E dropped $4.060 on the day to average $2.850 for Wednesday.

Meanwhile, El Paso Natural Gas (EPNG) continues maintenance at the Alamo Lake compressor station through Thursday, reducing capacity through the Dutch F constraint. Although the work is expected to be brief, these reductions will vary. On Wednesday, 147 MMcf is to be curtailed, while only 25 MMcf is set to be cut on Thursday.

Flows through the Dutch F constraint represent crossover flows from the North Mainline just upstream of Topock, towards the Ehrenberg delivery area on EPNG’s South Mainline.

As such, higher prices were seen at El Paso S. Mainline/N. Baja, where spot gas jumped 50.0 cents on the day to $7.050.

Elsewhere across the country, ANR Pipeline also was conducting planned compressor station maintenance on its Southeast Mainline. The work, set to continue through March 20, would impact Jena Southbound and Dehli Southbound, located in La Salle and Richmond counties, in Louisiana, on Segment 2.

Wood Mackenzie said southbound operational capacity would be reduced by 67,008 MMBtu/d and 157,296 MMBtu/d, respectively. As such, ANR expects the work may impact interruptible and firm secondary volumes.

Henry Hub prices tacked on 6.0 cents day/day to average $2.520 for Wednesday’s flow.

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