February Natural Gas Futures Fall Below $4 Threshold | will it snow in florida

Natural gas futures floundered Tuesday, opening regular 2023 trading much like they closed out last year – falling on expectations for mild January temperatures and light heating demand.

At A Glance:

  • Demand forecast fades
  • Production bounces back
  • Mixed outlook on storage

The February Nymex gas futures contract on Tuesday settled at $3.988/MMBtu, down 48.7 cents day/day. March shed 46.3 cents to $3.641. The prompt month had slipped 8.4 cents on Friday to finish 2022.

NGI’s Spot Gas National Avg., in contrast, jumped $1.545 to $6.305, led higher by hubs in the West amid flooding rains in California and punishing snow storms in the Rocky Mountains and northern Plains.

After bouts of winter weather this week, however, much of the Lower 48 is expected to see warmer-than-normal temperatures next week and through at least the middle of January, according to National Weather Service data.

“Most of the southern half of the U.S. and up the Mid-Atlantic Coast will see highs in the 60s and 70s,” with “very little coverage of daytime highs below freezing over the northern U.S.” outside of the northern reaches of the Rockies and the Plains, NatGasWeather said. 

Meanwhile, after widespread freeze-offs amid an Arctic storm last week, production had largely recovered by Tuesday, boosted by gains in the Northeast.

Output climbed above 99 Bcf/d on Tuesday, up from around 95 Bcf/d in late December, according to Bloomberg estimates.

Wood Mackenzie analyst Laura Munder said “impacts are still ongoing” in North Dakota and Montana, but production overall is back near the record levels just above 100 Bcf/d reached in 2022.

Forecasts also showed above-average temperatures for most of Europe in the first half of January, potentially easing near-term demand for U.S. exports of LNG after a seasonally mild December over parts of the continent. European natural gas prices on Tuesday hit the lowest level since November 2021.

Additionally, a key U.S. liquefied natural gas facility in Texas remained offline this week amid protracted repair efforts. Freeport LNG was forced offline last summer following a fire. The company hopes to relaunch later this month.

“A record warm start to 2023 for the U.S., near-record natural gas production, soft LNG exports due to Freeport still being offline, and very warm temperatures the past few weeks over Europe have led to huge risk off trade in U.S. and global natural gas markets,” NatGasWeather said.

EBW Analytics Group’s Eli Rubin, senior analyst, served up a similar assessment Tuesday.

“The overwhelmingly mild weather shifts that marked the end of 2022 are continuing unabated into 2023, with extreme warmth across the eastern U.S. and Texas extending to mid-January. The gas market has now lost 235 Bcf of weather-driven demand since December 15, collapsing the February contract,” Rubin said.

Fundamentally, he added, “natural gas is weak with further to fall on a seasonal basis. The market is repricing eviscerated natural gas risk premiums from having guaranteed winter supply adequacy to being oversupplied in 2023. Weather is fickle and a short-term bounce is possible, but the outlook for natural gas is bearish for the new year.”

Storage Snapshot

In bulls’ favor, analysts are looking for a massive withdrawal with this week’s U.S. Energy Information Administration (EIA) report – following the blustery conditions and hits to production late in December.

Early estimates for the week ended Dec. 30 submitted to Reuters ranged from withdrawals of 142 Bcf to 290 Bcf, with an average of 220 Bcf.

NGI estimated a pull of 237 Bcf.

That compares with a reported decrease of 46 Bcf during the same week a year earlier and a five-year average of 98 Bcf.

EIA reported a larger-than-expected 213 Bcf withdrawal from storage for the week ended Dec. 23. Stockpiles ended that period at 3,112 Bcf, or 85 Bcf (minus 2.7%) below the five-year average.

Analysts at The Schork Report expect that pull to be followed by a “gargantuan” withdrawal with this week’s print. In addition to weather factors, they noted robust residential electricity demand amid holiday gatherings.

EIA storage reports covering early January, however, could prove “miniscule,” given weather forecasts and rebounding output, the Schork analysts said.

Spot Prices Surge

Next-day cash prices spiked in the West on Tuesday amid a rash of winter weather. The storms were not expected to last long, but in the immediate term, they fueled robust demand from California through the Rocky Mountain region.

In the Rockies, Northwest Sumas climbed $2.880 day/day to average $18.460, and Questar soared $4.080 to $21.500.

Farther west in California, SoCal Citygate surged $7.920 to $26.410, while SoCal Border Avg. advanced $9.175 to $25.425.

AccuWeather meteorologists noted that heavy snow and blizzard conditions wreaked havoc in parts of the Rocky Mountains, northern Plains and Upper Midwest to start the week. More than a foot of snow fell from Monday night through Tuesday in parts of the Dakotas, for example, with stormy conditions expected to continue into Wednesday.

In some areas, freezing rain preceded snow on Tuesday.

The severe weather threat could extend to the South and East, AccuWeather said, in the form of thunderstorms and possible tornadoes.

The main threats are powerful wind gusts and flash flooding in areas of Kentucky and Tennessee as well as parts of Georgia and Florida, AccuWeather said. However, a few of the strongest thunderstorms could produce tornadoes.

In the Southeast on Tuesday, Florida Gas Zone 3 gained 10.0 cents to $3.685, and Transco Zone 4 gained 12.5 cents to $3.590.

Earlier in the week, messy storm systems first impacted California with flooding rains and mountain snow before tracking across the nation’s midsection, AccuWeather noted.

Another storm is expected to douse swaths of California on Wednesday and Thursday, likely causing flooding and, potentially, mudslides.

“The slow-moving nature of the storm and its moisture will lead to multiple hours of moderate to heavy rain at low and intermediate elevations of California,” said AccuWeather meteorologist Joe Lundberg.

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