The combination of unseasonably light weather-driven demand and record-level production continued to deal one bearish blow after another to regional natural gas prices during the Dec. 7-13 trading period, data from NGI’s Forward Look show.
Traders locked in fixed price discounts from coast-to-coast for the period, with Henry Hub down to $2.342/MMBtu for January delivery, off 23.3 cents week/week.
Selling was especially pronounced at demand hubs, where basis premiums continued to wither in the face of strong production figures and Lower 48 forecast maps blanketed by swaths of warmer-leaning temperatures deep into the back half of December.
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Coastal Premiums Fading
Along the East Coast, Algonquin Citygate basis crumbled across the remaining winter months, with January dropping $2.616 week/week to end at plus-$7.243. Cove Point, Transco Zone 6 NY, Texas Eastern M-3, Delivery and other regional hubs followed similar trends in terms of weakening winter basis premiums.
Perhaps hinting at the market’s longer-term thinking around fundamentals, some winter 2024/25 contracts came under downward pressure during the period. Algonquin Citygate, for example, shed $1.305 for January 2025 basis, ending the period at plus-$9.303.
This bearish pressure heading into early 2025 comes as the market prices in the demand-dampening implications of a later startup for the Golden Pass LNG terminal. ExxonMobil’s announcement that the terminal wouldn’t start exports until early 2025 weighed heavily on prices in the week-earlier period.
Recent warm-biased forecasts aside, Mid-Atlantic and Northeast hubs have proven susceptible to outsized spikes during extreme cold events.
Average Algonquin Citygate day-ahead prices spiked to more than $71 this past February and traded in the mid-$30s late last year. Transco Zone 6 NY spot prices topped $140 on average in January 2018, with Transco Zone 5 day-ahead prices soaring to just over $127, Daily GPI historical data show.
Meanwhile, on the West Coast, regional prices have thus far experienced nothing like the conditions that drove price spikes this time a year ago.
After approaching $50 on average in December 2022, average SoCal Citygate cash prices dropped as low as $3.270 during the Dec. 7-13 trading period. Northwest Sumas saw similar spikes a year ago but recently averaged a paltry $1.115 in day-ahead trading, Daily GPI data show.
Recent spot pricing would appear to make western Lower 48 forward premiums increasingly difficult to justify, even in light of the region’s history of volatility.
Unsurprisingly, regional basis differentials shed large chunks of value for the Dec. 7-13 period, particularly for January delivery. SoCal Citygate January basis ended at plus-$2.271, down 47.9 cents. Northwest Sumas shed 81.1 cents for January to fall to plus-$2.818.
Despite accumulating heating degree days in recent model runs as of Thursday, weather data remained “exceptionally” bearish, according to NatGasWeather. Markets have had to contend with “one of the warmest Decembers of the past 50 years,” the firm said.
Once an “anomalously warm December” is in the books, colder conditions could arrive in the new year, NatGasWeather said.
However, recent long-range forecasting hinting at chillier temperatures for the Lower 48 in January remained “quite far out in time and where changes should be expected,” the firm added. “Most important, until bluer/colder weather maps show up in the weather data, bearish weather headwinds will continue.”
Relief (Rally) At Last?
Nymex futures continued to skid lower during the Dec. 7-13 period, including consecutive double-digit declines for the January contract early in the work week.
The rapid descent in futures winter-to-date leads to questions of when selling pressure might eventually relent.
January Nymex futures added 5.7 cents Thursday to settle at $2.392, building on a modest 2.4-cent gain in the prior session. Nymex gains Wednesday were much stronger further along the curve.
Analysts at Mobius Risk Group highlighted the midweek price action along the strip, which included an “expansion of contango” resulting from gains for summer 2024 that outpaced strengthening for first quarter 2024 contracts
“Longer-dated tenors were also well bid, which suggests some of what we identified as deal-related hedging…is being absorbed by an ‘oversold’ market,” the Mobius team said.
“The term oversold is clearly subjective, although attempts are made to statistically quantify such a statement, and yet history would tell us there is a fundamental tipping point sub-$2.50,” the Mobius analysts continued. “An even more reliable tipping point is found 50 cents lower, and in order for that level to be tested temps would likely need to remain just as warm in the first quarter as they have been so far this winter.”
A recent snapshot of the 2024 calendar strip (Cal 2024) showed futures averaging below $2.50, EBW Analytics Group analyst Eli Rubin observed.
If realized, Henry Hub prices at this level would rank among the weakest this millennium, rivaled only by the nadir of the 2020 pandemic, according to the analyst.
“Nonetheless, the market still remains fundamentally oversupplied for Cal 2024 by several hundred Bcf,” Rubin said. “Ultimately, producers may limit supply while power sector coal-to-gas switching takes off — but further pain for prices is likely first.”
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