Regional natural gas forwards eased lower during the Oct. 19-25 trading period as market participants continued to price in a comfortable winter supply outlook amid still-elevated production readings and an ample storage buffer.
Fixed prices at Henry Hub shed 4.8 cents for November and 8.6 cents for December, ending at $3.011/MMBtu and $3.382, respectively, according to NGI’s Forward Look. Modest front-month fixed price discounts were the norm for most Lower 48 hubs.
Elevated New England basis premiums conceded ground during the period. Downward pressure on regional December pricing shed some light on the market’s thinking around early winter risks. December basis at Algonquin Citygate narrowed to plus-$5.214, a 55.0-cent slide week/week.
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Waha Woes
Meanwhile, for supply hubs in the Permian Basin, regional pipeline maintenance conspired with softer pricing downstream to drive steep basis discounts at the front of the curve.
Waha November basis plunged 53.1 cents week/week to minus-$1.550, with December down a more modest 5.8 cents, finishing at minus-49.2 cents.
El Paso Permian saw a similar widening in its discount to Henry for November delivery, shedding 51.1 cents to fall to minus-$1.525.
As highlighted in a recent research note from East Daley Analytics, scheduled maintenance on Kinder Morgan Inc.’s Permian Highway Pipeline has been impacting October flows on the west-to-east conduit.
In an updated notice on its electronic bulletin board, the operator said maintenance on its Big Lake Compressor Station would restrict PHP’s capacity to 1.73 Bcf/d through Monday. The restriction began roughly a week earlier, according to the operator.
“PHP can normally transport 2.1 Bcf/d to the Gulf Coast,” implying a 370 MMcf/d capacity reduction, East Daley analysts said. “…Previous pipeline outages have caused price volatility at the Waha hub given egress constraints in the basin.”
Meanwhile, downstream of the Permian to the West, demand hubs in Southern California also came under near-term downward pressure during the Oct. 19-25 trading period.
Regional hubs continued to display volatility, feeling the aftershocks of price spikes in the year-earlier period.
After surging a week earlier, SoCal Citygate sold off across the winter strip, with discounts concentrated at the front of the curve, Forward Look data showed. November fixed prices at the location tumbled $1.863 for the period to finish at $8.571. December ended the period at $11.695, down 72.3 cents.
Elsewhere in the West, PG&E Citygate and Opal also shed value across the winter strip, with fixed price declines generally confined to within 5 percentage points week/week.
Malin added around 20 cents for February delivery, while Northwest Sumas fixed prices picked up 17.1 cents for November.
Forecasts from Maxar’s Weather Desk as of Thursday advertised generally warmer-leaning temperatures for the western Lower 48 during both the six- to 10-day and 11- to 15-day periods.
Following colder-than-normal conditions in the nearer term, Southern California was expected to see a return to warmer temperatures by the end of the month, according to the forecaster.
“Wet conditions increase for the Northwest during the second half of the six- to 10-day period, and the models suggest this will remain the case into the 11- to 15-day,” Maxar said. “This is a reflection of a strengthened flow from the Pacific, which will also act to warm the pattern downstream. Above normal temperatures are forecast for the West, with the Southern Half also seeing a round of aboves.”
Pacific region storage stood at 283 Bcf for the week ending Oct. 20, just slightly above the five-year average, according to updated U.S. Energy Information Administration (EIA) data.
Cold Blast Incoming
After the front month dipped well below the psychological $3 mark, Nymex futures began to rebound during the Oct. 19-25 trading period, eking out consecutive daily gains in the lead-up to a bullish print from the latest EIA storage report.
The rally picked up steam Thursday, with the soon-to-expire November contract surging 20.4 cents to settle at $3.214. December, meanwhile, rallied 10.1 cents, settling at $3.477.
Recent forecasts showed a frigid blast moving over key demand centers in time for Halloween, offering market participants assessing winter balances a potential taste of things to come.
“Looking ahead, most weather models see next week as bringing in notably colder temperatures to the Lower 48, which should have large impacts on the associated storage release through residential/commercial demand increases,” analysts at Gelber & Associates said in a research note Thursday.
However, a scheduled delay in EIA’s data release schedule could leave analysts in the dark when it comes to gauging the impacts of the early season cold blast, according to the firm.
EIA said it would delay the Nov. 9 release of its weekly natural gas storage report by one week to conduct a planned system upgrade. The agency instead plans to publish two weeks of data on Nov. 16.
“Without access to the prior week’s storage data that normally serves as a baseline to their models, analysts may be significantly off the mark, especially if fundamentals see notable shifts in the meantime,” the Gelber analysts said. “As a result, the potential for price volatility on the 16th is high.”
The coming cold could raise heating demand levels “far more rapidly than many anticipate,” EBW Analytics Group analyst Eli Rubin said in a recent note.
The firm estimated a five-fold increase in heating demand levels between Thursday and the middle of the upcoming work week.
Winter could “arrive in a hurry for a large portion of the country,” Rubin said. “Denver, for example, may flip from mid-70s and sunny to 22 degrees and snowing. Further, the amassing cold air supply over the Plains could subsequently spill eastward and southward into early-to-mid November, boosting upside demand risks.”
Still, looking longer term, the analyst noted a correlation between El Niño winters and warm-leaning December temperatures, cautioning that a “blowtorch December” remains a possibility.
“Although even normal weather appears likely to lead to an oversupplied winter market — Nymex futures may require colder than normal temperatures to support mid-winter risk premiums — elevated risks for severe warmth should not be discounted,” Rubin said.
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