Weekly cash natural gas prices fail to track the future as winter wears off

Weekly cash natural gas prices fell to their lowest level of the year as weakening weather-driven demand outweighed supportive trends in LNG production and exports.

NGI’s Weekly Spot Gas National avg. for the February 29-March 1 trading period, March gas delivery fell 11.0 cents/MMBtu to $1,440.

The main regional declines were in the Northeast and Arizona/Nevada. New England PNGTS down $1,800 weekly to average $2,020. El Paso S. Mainline/N. Baja shed 43.0 cents to $1,495.

Meanwhile, prices were mostly higher in Texas, South Louisiana, the Midwest and Appalachia. Wow rose 4.0 cents to average 59.0 cents. Chicago Citygate rose 5.5 cents to $1,440. Benchmark Henry Hub it was unchanged at $1,560 from the previous week.

Meanwhile, in futures markets, the Nymex first-month futures contract rose on the week. It settled at $1,835 on Friday, down 2.5 cents on the day but up 14% from the previous week’s close.

The front month series closed February at $1,860, down 19.0 cents from the start of the month. But the close, as well as the weekly gain, both masked a choppy run to get there for the first month. The price line fell as low as $1.511 intraday on Tuesday, the lowest level since mid-2020 and an all-time low on an inflation-adjusted basis.

Blowtorch Weather

The short-term cold spell provided support to increase the national avg. to $1,570 midweek, but the cold did little to disrupt the season’s trajectory as one of the warmest winters in many areas of the country.

March is not expected to offer anything different. According to Maxar meteorologist Brad Harvey, the first half of the month will be the fourth warmest on record.

Daily record warm lows are forecast early in the first week of March “from the Midwest to the East, including New York with upper 40s to 50s Sunday through Tuesday,” Harvey said on the Enelyst chat platform.

Strong winds were another drag on gas demand. Wind power generation was forecast to be “impressively strong for most of the next 15 days,” NatGasWeather said. The combination with mild weather could “bring a significant increase in surpluses” to the lower 48 gas in operating inventories, the firm said.

Weaker gas prices have led exploration and production companies to curtail drilling activities. Lower 48 production has already slowed from a weekly pace above 105 Bcf/d in late January to less than 103 Bcf/d in late February.

According to Mobius Risk Group analysts, some of the most significant production cuts have occurred in the Appalachian Basin. Pipeline flows for the basin indicate that its output slowed to around 33 Bcf/d in late February, from 34-35 Bcf/d earlier in the month.

Mobius analysts said this 2 Bcf/d reduction means that “in today’s very low price environment, volumes are tightening rapidly. This turns out to be another example of rationalizing production at or below $2.00.”

Wood Mackenzie Americas vice chairman Ed Crooks wrote in a note that gas prices will eventually rebound after supply cuts. “Henry Hub prices cannot remain below $2/MMBtu forever as supply will be constrained to rebalance the market. It is already starting to happen,” he said.

However, the effect of activity restrictions would take some time to manifest. “Completion delays affect production one to three months ahead, and drilling curtailments typically have an impact six to nine months out,” Crooks said.

Planed export

Exports of liquefied natural gas did the domestic U.S. market no favors in the week as Freeport LNG Development LP said it would need next two weeks repair a third train at its export terminal on the Texas coast.

The facility has consumed approximately 0.65 Bcf/d less input gas since January. 14 than the roughly 2.0 Bcf/d flows it was achieving before pre-freezing temperatures damaged the unit.

U.S. LNG gas deliveries have hovered around 14 Bcf/d in recent weeks. That’s below the 14.5 Bcf/d levels reached before the Freeport outage.

“We should see a move back to 14.5 Bcf/d in the coming two weeks as Freeport exits maintenance,” Gelber & Associates analyst Ryan Parsons said on the Enelyst website.

But the spring maintenance season is just around the corner for the terminals, and added to that are outages that would drain at a rate of 14.5 Bcf/d. Criterion Research vice president James Bevan said his firm expects LNG feedstock demand to average 13.05 Bcf/d during the injection season, which runs from April to October, up 0.26 Bcf/d from in the same period last year.

Physical images

Spot gas prices fell from Friday to weekend delivery on Monday, following steeper declines on Thursday that reflected a week of cold weather that gave way to pleasant weather for the weekend.

Mushrooms in South Texas led all regions below. Tennessee Zone 0 South down 18.0 cents day/day to average $1,235.

The declines in the East were not far behind. Southeast’s busiest hub, Transco zone 4, shed 17.0 cents to $1,435. in the northeast, Algonquin City Gate fell 23.0 cents to $1,500.

Appalachia Columbia Gas fell 9.0 cents to $1,280.

Bucking the national trend, prices rose in West Texas and the Rockies. KRGT Rec Pool in Wyoming rose 16.5 cents to $1,730. West Texas price nodes continued to recover from a supply glut caused by maintenance outages, although all remained below the $1,000 level. Permian El Paso rose 9.5 cents to an average of 67.0 cents.

The higher prices in the West came as a winter storm descended on the region. Blizzard conditions were forecast for the Sierra Nevada over the weekend, with extreme snowfall totals of five to 12 feet possible, according to the National Weather Service (NWS).

Light snow was possible in parts of the Northern Plains, the forecaster said. The cold front was expected to bring below-average temperatures with highs in the 30s to 40s in the Northwest, northern California and the northern Rockies, according to the NWS.

But for the other two-thirds of the country, spring temperatures were forecast for most of the Plains and Midwest region, the NWS said. In the Southeast, highs are expected to reach the 60s and 70s on Saturday. In New England, temperatures would warm from the 20s and 30s on Friday to the 40s on Saturday, while the mid-Atlantic would remain above average with highs in the 40s and 50s, the NWS said.

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