Weekly natural gas cash prices spiked early in the week as a winter storm system moved across the northern half of the country, dropping chilly rains on the Northwest and heavy, wet snow over swaths of the nation’s midsection.
The blast of winter boosted heating demand Monday and into the following day, establishing a strong foundation that held up through the end of the trading week even as temperatures rebounded after the storms passed.
Production, meanwhile, had recovered late in 2020 from lows earlier in the year amid the coronavirus pandemic and interruptions imposed by a record hurricane season. But output leveled off to start the new year, helping to support prices during the covered week.
NGI’s Weekly Spot Gas National Avg. for the Jan. 4-8 period climbed 18.5 cents to $2.715.
As the trading week closed, Columbia Gas was up 33.0 cents to $2.435, while Dominion Energy Cove Point was ahead 47.0 cents to $2.875, and Henry Hub was up 32.5 to $2.685.
NatGasWeather said demand was set to intensify over the weekend along with a far-reaching bout of cold air that the forecaster expected would bring lows ranging from the teens to the 30s over much of the northern United States.
However, the firm said, the second trading week of January is setting up for notably weaker demand.
“Demand will fizzle” as the week progresses “as much of the United States again becomes warmer than normal besides Texas and the South,” where weather systems could track through, NatGasWeather said.
Aside from weather, demand in future weeks could get a boost from greater economic activity.
While residential heating demand has generally proved strong with more Americans working from home amid the still-raging coronavirus, commercial and industrial energy needs have yet to fully recover to pre-pandemic levels, analysts say. But with vaccination efforts underway across the Lower 48, public health officials have consistently expressed confidence in widespread inoculation in 2021, a development that could end the pandemic and enable businesses to fully reopen. That would spur greater levels of commercial and industrial activity and lift demand for natural gas and other fuels.
A “swelling story of mass vaccinations, mass reopening and growth, normalcy and stability, and an uptick in demand (for everything) on a global scale” lies ahead, said the Desk’s John Sodergreen, writing on the company’s online energy platform Enelyst.
Natural gas futures rallied throughout most of the week, boosted by expectations for a burst of cold across the Lower 48 in the second half of January, a steep storage withdrawal and robust demand for U.S. liquefied natural gas (LNG) exports.
The prompt month finished in the green every day of the week except Friday, when weather outlooks shifted warmer for late January and curbed momentum. The February Nymex contract settled at $2.700/MMBtu on Friday, down more than 1% from the prior day’s close but up 6% for the first trading week of 2021.
LNG volumes hovered above 11 Bcf most of the week – around record levels – thanks in large part to robust demand from Asia, where frigid temperatures and tight domestic supplies are fueling strong demand.
Analysts at Tudor, Pickering, Holt & Co. (TPH) said international demand could prove strong deep into 2021, with fuel shortages also looming in Europe. Global LNG demand could soon begin cutting deep into U.S. underground gas stockpiles and put further upward pressure on prices.
Inventories should “contract marginally” versus five-year average levels in the first quarter “before diverging materially” through the second and third quarters as “much stronger year/year LNG utilization pushes the market into undersupply,” the TPH analysts said. “If pricing doesn’t respond to force gas to coal switching, we expect inventories to exit the second quarter at a 6% deficit to the five-year average and widen to a 19% deficit by the end of the third quarter.”
Given that expectation, the TPH analysts forecasted a return to $3.00-plus pricing ahead of the 2021/2022 winter as the market looks to avoid entering the next heating season with storage at “precarious levels.”
The U.S. Energy Information Administration (EIA) reported a withdrawal of 130 Bcf from natural gas storage for the week ended Jan. 1. The pull to kick off the year far exceeded the year-earlier withdrawal of 44 Bcf.
The latest withdrawal reduced inventories to 3,330 Bcf, though stockpiles were still above the year-earlier level of 3,192 Bcf and above the five-year average of 3,129 Bcf.
What’s more, NatGasWeather said, markets for much of the week were looking ahead opportunistically to anticipated cold later this month. The forecaster expects widespread freezing temperatures beginning as soon as Jan. 18 and lasting for several days, though models late in the week pointed to some easing in the intensity of the coming chill.
“The onus is on the cold coming through,” the firm said.
NGI’s Spot Gas National Avg. clawed out a 1.5 cent gain on Friday for weekend through Monday delivery — closing at $2.780.
With the exception of a few hubs in the Northeast, where high temperatures hovered in the 30s on Friday, spot gas prices were generally up or down only a few cents.
The National Weather Service noted that conditions were chilly but comfortable for January across most of the Lower 48, with highs ranging from the 30s to 60s. High temperatures were expected to dip into the 20s in parts of the northern United States over the weekend but then warm back up again.
In the Northeast, Algonquin Citygate gained 54.0 cents day/day to average $3.860 and Tenn Zone 6 200L climbed 46.5 cents to $3.885.
Elsewhere, gains and losses were measured in a few cents. In the Midwest, Chicago Citygate fell 3.0 cents to $2.610 and Dawn declined 3.5 cents to $2.565.
In Texas, El Paso Permian advanced 2.5 cents to $2.655, while Katy declined 5.0 cents to $2.680.
On the pipeline front, Wood Mackenzie noted that, starting Tuesday and continuing through Wednesday, Cheniere Energy Inc.’s Corpus Christi Pipeline in Texas would be performing scheduled maintenance at its Sinton Compressor Station. The firm expects operational capacity to be limited to 1.86 Bcf/d. It estimated that limitation would impact roughly 128 MMcf/d of feed gas deliveries to Cheniere’s Corpus Christi LNG facility based on the prior seven-day flow average.