With production lighter, April natural gas futures advance in first-month debut; Strengthening of spot prices

Natural gas for April supplies rose for a third straight day, boosted on Wednesday by lower production estimates and a late winter surge of frigid air across the middle of the country.

At the first sight:

  • 80s Bcf withdrawal expected
  • Output is holding close to 102 Bcf/d
  • Cooler short term conditions

The Nymex April gas futures contract gained 7.7 cents day/day in its first session as the prompt month to settle at $1.885/MMBtu.

NGI Spot Gas National Avg. climbed 18.0 cents to $1,570 amid cold midweek weather.

Output held near 102 Bcf/d for a second straight day on Wednesday, hitting a February low and keeping output far from recent record levels of around 107 Bcf/d, according to Wood Mackenzie estimates.

At the same time, an arctic chill swept in from Canada on Tuesday, bringing single-digit temperatures across the Plains and Midwest on Wednesday. Conditions were forecast to make landfall in Texas and spread into the Northeast by Thursday.

However, the freeze was expected to be short-lived, with above-average temperatures for much of the Lower 48 this weekend, including highs in the 60s in the Upper Midwest. Forecasts called for an overall mild first half of March.

NatGasWeather said both European and US forecast models were predicting “exceptionally warm and bearish” temperatures from March 1 to 13. Over the US, “there will be little subfreezing air for much lighter than normal demand. And it doesn’t help that wind production over the next 15 days will be strong enough to offset the recent decline in production.”

EBW Analytics Group senior analyst Eli Rubin is similarly cautious. “Mild weather continues to dominate the short-term outlook,” he said.

He noted that the March contract tested annual lows at $1,511 in its final session on Tuesday. This week, Freeport LNG Development LP announced that the third train at its export facility on the upper Texas coast will offline for the next two weeks added another wrinkle. It extends the month-long shutdown and further curbs demand for liquefied natural gas until the start of the spring season.

April futures are holding up, but momentum will largely depend on a sustained decline in production, Rubin said. Meanwhile, seasonally weak inventory prints could renew downward pressure on prices, he said. Overall, the below-average temperatures expected through mid-March have led to a “projected expansion of excess storage over the five-year average of more than 200 Bcf,” he said.

Repository Surveys

Total Lower 48 working gas in underground reservoirs was 2,470 Bcf as of February. 16 – 451 Bcf above the five-year average. For the mentioned period, the US Energy Information Administration (EIA) reports were published by the government 60 Bcf natural gas draw from storage. That compares to a five-year drawdown average of 168 Bcf.

For Thursday’s EIA report covering the week ending in February. 23, draw estimates provided to Reuters ranged from 77 Bcf to 95 Bcf, with a median of 88 Bcf. A Bloomberg survey on Wednesday gave a narrower range and a median expectation of an 87 Bcf draw.

NGI modeled a draw of 84 Bcf. This compares to a five-year average decline of 143 Bcf.

More anemic footprints likely lie ahead, NatGasWeather said.

“Due to strong winds and warmer than normal temperatures, the next three EIA reports will print lighter than normal pulls, pushing surpluses to a massive plus-600 Bcf,” the firm said. “And while the balance between supply and demand has tightened over the past 10 days, it will take cooler weather” to reverse that trend, “which is not likely” beyond this week.

As Rubin noted, further production erosion could also give price bulls some hope. The market is looking for “guidance on the speed and extent of supply cuts promised by producers” such as Chesapeake Energy Corp. during earnings this month.

Manufacturing uncertainty

Still, with global demand for LNG expected to be stronger from 2025 with the opening of new export facilities on the Gulf Coast, producers are reluctant to slow down too much.

Analyst Alex Gafford of East Daley Analytics said that apart from a few disruptions due to weather, production in the Northeast remains strong.

East Daley pipeline samples covering the Appalachian region hit a record high in December 2023, averaging 34.5 Bcf/d for the month, Gafford said. “Growth in the watershed is coming from both northeastern Pennsylvania and southwestern Pennsylvania development areas,” he said.

In the northeast region of the state, Gafford said supply gains followed the launch of the Transcontinental Gas Pipeline (Transco) Regional Energy Access (REA) development. Transco owner Williams began partial service on the REA project in October 2023, it noted, adding 450 MMcf/d of capacity on the Liedy line to Transco’s Zone 6 (outside New York) market. The project increases connectivity from the Leidy, Pennsylvania storage hub to the northern end of the Transco system in New Jersey.

Northeast Pennsylvania samples have increased by more than 800 MMcf/d since the REA expansion began,” Gafford said. “Williams plans to bring the remaining 379 MMcf/d capacity from REA on line before next winter in 4Q2024, likely to continue” growth trend.

Cruise Cash Prizes

Spot gas prices climbed through the lower 48s in response to the cold front.

NatGasWeather said cold rain and snow, along with cold temperatures, will affect a huge swath of the country, from the mountain range west through the plains to the Great Lakes and Northeast, before mild weather returns this weekend.

Lebanon in the Midwest gained 15.5 cents day/day to average $1,505, while CIG in the Rockies rose 24.5 cents to $1,430 a Cove Point in Maryland jumped 30.0 cents to $1,850.

In anticipation of a cold front arriving in the Northeast on Thursday, Wood Mackenzie analyst Kara Ozgen said several pipeline operators had issued orders to operate (OFOs), warning that the weather could briefly interrupt gas supplies in the densely populated area.

These include OFO from Columbia Gas Transmission, Tennessee Gas Pipeline, Algonquin Gas Transmission and Iroquois Gas Transmission System. “We may see more OFO-emitting plumes as the system moves across the U.S., depending on how much below normal temperatures get,” Ozgen said.

Prices advanced through the Northeast mid-s PNGTS an increase of $1,365 to $3,160.

In addition, the Texas governor’s office issued disaster declarations for dozens of counties in the Panhandle state amid wildfires. The National Weather Service said on Wednesday that the fires continued to destroy property, force evacuations and produce plumes of smoke that affected other areas of Texas and Oklahoma. However, the blazes did not appear to limit natural gas flows or directly affect physical prices.

Instead, prices rose across Texas amid a cold snap in the central US. Houston Ship Channel jumped 22.0 cents to $1,450 to lead winners in the Lone Star State.

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