Natural gas weekly recap, December 30 – January 3

Natural gas fell for a second week after a smaller-than-expected decline in US inventories offset weather models showing record breaking cold temperatures in many densely-populated US areas.

On the New York Mercantile Exchange, natural gas futures for settlement in February fell by 0.4% on Friday to settle at $4.304 per million British thermal units. Prices held in a daily range between $4.206 and $4.390 per mBtu. The contract gained 1.5% on Thursday and settled the week 2.25% lower, a second straight weekly loss.

Gas was pressured on Friday after the Energy Information Administration reported the first below-average decline in US natural gas inventories in five weeks. Supplies fell by 97 billion cubic feet in the week ended December 27, underperforming expectations for a decline of 126 bcf. This was below the five-year average drop of 121 billion cubic feet and less than last years 126 bcf withdrawal during the comparable period.

Total gas held in underground storage hubs equaled 2.974 trillion cubic feet as of December 27th, 15.9% below last years 3.536 trillion stored. The deficit to the five-year average narrowed to 8.9% from the preceding weeks record 9.2%.

Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, commented for Bloomberg: “The market was anticipating a light withdrawal for last week, but the number came in even lower than expectations. The fact is, the market has priced in this very cold outburst of weather in early January. However, there is a lot of uncertainty following next week’s cold weather. The balance of January is so important.”

Inventories in the East Region fell by 67 bcf to 1.501 trillion and were 13.1% below the five-year average of 1.727 trillion cubic feet. The West Region received a net draw of 17 bcf to 412 bcf, 8.0% below the average. Stockpiles in the Producing Region slid by 13 billion cubic feet and reached 1.061 trillion, 2.5% beneath the five-year average of 1.088 trillion cubic feet.

Continuing cold weather

The worse-than-expected reading offset forecasts for continuing record cold temperatures in the next days. NatGasWeather.com reported on Sunday that a major Arctic blast continues to sweep across the central and eastern US, bringing record-breaking cold temperatures. They are expected to eventually push south and southeast, including Florida.

The website reported that high temperatures across the Midwest will hardly reach 0-5 degrees Fahrenheit during the next 5-7 days, while the Northeast will see single digits and teens. A strong low pressure system continues to develop along the front and will lead to snowfall over the Midwest, parts of the Mid-Atlantic, and all of the Northeast tonight and into Monday morning. Very strong winds leading to wind chills are also to be expected. Natural gas demand will be very high during the next 3-5 days and could lead to record withdrawals.

According to NatGasWeather.com, temperatures are expected to moderate in the latter days of the week as the cold pushes off the East coast and retreats into Canada. A warming trend is projected to have developed by the upcoming weekend, which would ease demand for natural gas.

Extended forecasts

However, extended forecasts show the period of mild weather will give way to a new cold blast around January 13th. Cold air is expected to push through the Rockies on the next day and then into the Plains and eastern US. Freezing temperatures and snowfall could again push deep into the southern US, including northern Texas and the Tennessee Valley.

According to AccuWeather.com, readings in Chicago will bottom at 0 degrees Fahrenheit on January 7th, 18 below usual, while the low in New York will hit 8 degrees, well below the average of 27 degrees. Temperatures in Boston are expected to fall to 12 degrees Fahrenheit, 9 below normal, while Charleston SC will see lows of around 18 degrees, 25 degrees below the average.

When cold weather is expected, natural gas surges as increased electricity demand to power air-conditioning calls for more supply of the fuel, which is used for a quarter of U.S. electricity generation. Above-average readings in the winter season have the opposite effect. Consumption usually picks up from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand and 49% of U.S. households use the energy source for heating.