Weekly natural gas spot prices trended lower as soft weather-driven demand overshadowed fresh signs of lower production and more output cuts to come.
NGI’s Weekly Spot Gas National Avg. for the holiday-shortened February 20-23 trading period fell 23.5 cents to $1.550.
Leading cash price decliners for the week included Southern Border, PG&E in the West, off 49.0 cents to $1.805, and Dracut in the East, down $2.235 to $2.825.
What’s more, early in the week, El Paso Natural Gas Pipeline declared a force majeure on its Line 2000, backing up Permian Basin flows. Waha prices slumped as a result, falling 36.0 cents to 55.0 cents
Meanwhile, the March Nymex contract struggled most of the week, though a brief midweek spike helped the prompt month to avoid a steep weekly drop. It settled at $1.603/MMBtu to close on Friday, down 12.9 cents on the day and down a hair from the prior week’s finish of $1.609.
Weather conditions proved largely benign throughout the past week, with mild temperatures canvassing much of the Lower 48. National Weather Service (NWS) forecasts called for more of the same late in February and early next month.
However, production slipped to as low as 103 Bcf/d during the past week. This was still strong by historical standards – roughly 5 Bcf/d above year-earlier levels – but down notably from the 107 Bcf/d record highs reached early this month, according to Wood Mackenzie estimates.
What’s more, Chesapeake Energy, among the nation’s largest natural gas producers, said it would reduce rigs and fracturing crews in the Haynesville and Marcellus shales. Chesapeake projected its natural production would fall from 3.24 Bcf/d at the end of last year to a 2024 average of about 2.7 Bcf/d.
Futures jumped nearly 20 cents on Wednesday in response.
StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI that the Chesapeake news boosted confidence that more producers would also pull back, helping to balance an oversupplied market after months of near-record output and a winter of soft heating demand.
“The market expected somebody to step up and say prices are too low to economically produce at record levels,” Saal said. But Wednesday marked the only advance of the week. “We’ll need to see more follow Chesapeake’s lead” to sustain any rally into the end of winter. “Prices are still pretty darn cheap. We’re coming off a lot of heavy selling” earlier in February “and there’s not a lot happening yet on the demand side.
“So in the meantime, we’re going to see bearish storage reports and more signs of imbalance that make it difficult to say we’ve hit bottom,” Saal added. “I wouldn’t go that far yet.”
Futures See-Saw
Aside from Wednesday’s bounce, the futures market drifted lower during the week, including after Thursday’s U.S. Energy Information Administration (EIA) inventory report.
EIA printed a 60 Bcf drawdown of natural gas from storage for the week ended Feb. 16. It was far from the five-year average pull of 168 Bcf. Prior to the report, estimates submitted to major polls coalesced around the low- to mid-60s Bcf. NGI modeled a 65 Bcf decrease.
The decrease lowered inventories to 2,470 Bcf. But supplies in storage easily surpassed the year-earlier level of 2,205 Bcf and the five-year average of 2,019 Bcf. It put stocks 22% above the five-year average.
While Chesapeake’s guide toward lower production was embraced by the market, it was not enough on its own to sustain the rally, said EBW Analytics Group ‘s Eli Rubin, senior analyst. He said traders remained fixated on lackluster heating demand and stout supplies in storage.
“Weather-driven gas demand is eroding with warmth expected into mid-March,” Rubin said. “The long-term fundamental outlook is weak.”
Production was also strong during the latest EIA inventory period – near 105 Bcf/d – and weather-driven demand was modest, particularly in Texas and surrounding states.
By region, the Midwest and East posted draws of 31 Bcf and 27 Bcf, respectively, according to EIA. Mountain and Pacific region stocks both decreased by 5 Bcf.
In contrast, the South Central reported an injection of 8 Bcf, reflecting mild weather and steady wind generation.
“Storage changes continue to maintain the heavily supplied state that working gas stocks have been in for a number of months now,” analysts at Gelber & Associates said.
Looking ahead to EIA’s next print covering the week of Feb. 23, analysts anticipated another anemic pull. Early estimates submitted to Reuters spanned withdrawals of 84 Bcf to 113 Bcf, with an average decrease of 97 Bcf. That compares with a five-year average decrease of 143 Bcf.
Friday Spot Prices
Natural gas cash prices cratered across most of the Lower 48 in trading on Friday for weekend through Monday delivery, hindered by the spring-like weather in late February. NGI’s Spot Gas National Avg. lost 8.0 cents to $1.450.
NWS forecasts showed above average temperatures across much of the Lower 48 for the week ahead, with highs approaching 60 degrees at times in markets as far north as Minneapolis. Southern markets could see widespread 70s and low 80s.
Ahead of that, SoCal Citygate fell 33.5 cents day/day to average $2.450, and Dawn in the Midwest shed 7.5 cents to $1.615.
Houston Ship Channel dropped 22.0 cents on Friday to $1.100, while Florida Gas Zone 3 fell 9.5 cents to $1.490.
Northeast prices proved the exception, with the weekend cold shot expected to impact New England and galvanize a bounce in heating demand. Algonquin Citygate near Boston climbed $1.045 to $3.140.
While temperatures are expected to be mild in the coming week, swaths of the central and eastern United States could see violent storms, said Alex Sosnowski, AccuWeather meteorologist. This presents the possibility of both power outages and production interruptions.
“The potential for a multiple-day severe weather outbreak, including tornadoes, continues to build from portions of the Great Plains to large parts of the Mississippi, Ohio and Tennessee valleys spanning Tuesday and Wednesday,” Sosnowski said. “The severe weather risk may even reach parts of the Appalachians and Eastern Seaboard on Thursday.”
The front could ride “a strong jet stream that will lunge eastward from the Rockies,” Sosnowski said. “Temperatures are likely to surge to record-high levels by day and remain at unusually warm levels at night in much of the central states ahead of the front…All modes of severe weather are possible.”
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