With a mid-January arctic blast lining up to drive strong heating demand and disrupt production volumes, regional natural gas forwards raced higher during the Jan. 4-10 trading period, NGI’s Forward Look data show.

Markets across the country braced for freezing and even subzero temperatures, with frigid temperatures and severe weather already developing ahead of the extended Martin Luther King Jr. Day weekend. 

In sharp contrast to mild conditions season-to-date, forecasts called for icy low temperatures to grip the Lower 48 into the week ahead, with Old Man Winter apparently keen to make up for lost time.

Pronounced fixed price front month gains sprawled across the North American market, with price strength weighted toward the eastern two-thirds of the Lower 48. Henry Hub rallied 37.3 cents for February delivery to end the period at $3.055/MMBtu, Forward Look data show.

[Market Dynamics: Listen in as NGI digs into the myriad pieces that make up the winter supply/demand puzzle and how they may impact prices through the heating season and beyond. Tune into the Hub & Flow podcast now.]

‘Brutal’ Cold Inbound

An “extremely active” weather pattern across the Lower 48 to close out the week included potential blizzard conditions from eastern Nebraska to central Michigan, the National Weather Service (NWS) said Thursday.

Areas in the Deep South and Southeast were expected to experience severe weather to close out the week, including “damaging wind gusts,” according to the NWS.

“A much colder arctic air mass will continue settling south and east in the wake of this storm across the Plains, Midwest and into the Ohio Valley,” the forecaster warned. “Temperatures will be brutal compared to the relatively mild conditions that have been experienced for much of the winter season up to this point in time.

“Afternoon high temperatures will likely fail to reach zero degrees across much of Montana and into North Dakota” to close out the work week, with the Central Plains, Iowa and Minnesota expected to see highs only reach the single digits or teens, the NWS added. “This arctic air mass will be lengthy in duration and persist well beyond the end of the week.”

Demand hubs across multiple regions posted outsized gains to drive up basis differentials during the Jan. 4-10 period, including in the often-congested Northeast, where Tenn Zone 6 200L finished at plus-$7.193 for February, up 69.0 cents. 

Elsewhere, Texas Eastern M-3, Delivery February basis jumped to plus-$2.364, up 80.3 cents. In the Mid-Atlantic, Transco Zone 5 surged $1.232 to end at a $4.606 premium to Henry.

Hubs in the Lower 48’s middle third, set to experience some of the most intensely frigid conditions forecast with the arriving wintry weather, also posted large basis gains for the period.

Northern Natural Ventura jumped to plus-$2.484 for February, up $1.122. Chicago Citygate basis rallied 70.9 cents to reach plus-$1.155 for February. NGPL Midcontinent basis exited the period at a 55.0-cent markup for February, a 43.6-cent swing higher, Forward Look data show.

With the extreme cold poised to sweep across much of the Lower 48 in the days ahead, natural gas markets were “on edge” as of Thursday, Wood Mackenzie analyst Kara Ozgen said.

Ozgen cited a slew of notices and alerts from pipeline operators bracing for the cold, including operational flow orders.

Based on forecasts, “it’s undoubtedly expected to be an impactful cold shot that will affect the whole U.S. at one point or another,” the analyst said. 

Futures to Revert Lower?

Even with the full impacts of this month’s winter blast yet to transpire, a sharp sell-off Wednesday for Nymex futures suggested traders were already looking ahead to a potential late-January warm-up.

The February contract rallied to as high as $3.231 Thursday after the magnitude of the latest storage withdrawal reported by the U.S. Energy Information Administration (EIA) surprised to the high side. However, the front month failed to sustain those gains, pulling back to eventually settle at $3.097, up 5.8 cents day/day.

Looking at weather-driven gains for Nymex futures earlier in the week, “the backdrop of strongly bullish technicals and unraveling of a sizable speculator short position amplified the move higher,” EBW Analytics Group analyst Eli Rubin said in a recent note. “Although substantial volatility is likely short term, gains appear overextended on a longer timeframe.”

Rubin observed that “even Winter Storm Uri” in February 2021 “ultimately failed to sustain storm-induced price increases. Despite half of the winter still to go, a robust supply picture suggests a reversion lower in Nymex futures over the next 90 days.”

How inventories are impacted by winter weather over the next few weeks could determine if prices end up “retesting supply-curtailing $2.00 levels” or soar above $3, according to analysts at Mobius Risk Group.

Prior to Thursday’s EIA report, the firm looked at degree days and storage withdrawals season-to-date and estimated an implied 2.5 Bcf/d undersupply year/year.

Looking ahead, Mobius estimated 130 more heating degree days (HDD) over the next two weeks versus year-earlier levels, which would contrast with a tally of 200 fewer population-weighted HDD winter-to-date.

“In a brief two-week period, we are poised to erase approximately two-thirds of the bearish year/year weather anomaly,” the Mobius analysts said.

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