Natural gas futures have been climbing, sparked by new weather forecasts pointing to bitter cold arriving in major population centers as soon as this weekend.
On Monday morning, the February Nymex contract had climbed 55.2 cents to $3.935/MMBtu. This jump came after a relatively modest 6.4-cent gain at the end of last week, as the contract took over from the expiring January futures, which settled at $3.514.
Much of Monday’s surge was driven by expectations that this week’s relatively mild temperatures would abruptly give way to below-normal readings by the weekend. According to Wood Mackenzie analyst Kara Ozgen, a series of cold blasts is on track to sweep the Lower 48 states until at least mid-January.
NatGasWeather said forecasts over the weekend remained notably cold across the U.S. for Jan. 2-12, with the latest American and European weather models trending 16 heating degree days colder than Friday’s data. If the predictions prove accurate, national demand could spike, and freeze-offs could become an issue during the first half of January.
Despite the looming cold, few pipelines had posted weather alerts or operational flow orders (OFO) on Monday, according to Ozgen. Iroquois Gas Transmission System extended an existing OFO, and ANR Pipeline Company issued a Phase 1 cold weather operational conditions alert from Jan. 2-9.
There are also growing concerns about natural gas stockpiles. NatGasWeather noted that if the cold forecast holds and freeze-offs affect production, upcoming U.S. Energy Information Administration (EIA) storage reports could show withdrawals of more than 200 Bcf—and possibly topping 250 Bcf. Such hefty draws could wipe out the current 166 Bcf surplus in no time.
“How long this colder pattern lasts is of great interest,” NatGasWeather said, “especially since much of the data suggests the eastern U.S. will stay below normal temperatures through Jan. 15.”
Meanwhile, the EIA on Friday (Dec. 27) reported a 93 Bcf withdrawal from inventories, which was below both market expectations and the five-year average pull of 127 Bcf, but higher than the 87 Bcf withdrawn a year ago. Inventories now stand at 3,529 Bcf. This reduction nudged down the surplus compared to last year to 14 Bcf, but the surplus to the five-year average widened to 166 Bcf.
“This was the largest year-on-five-year average storage surplus since November 29,” said Tim Evans, an analyst with Evans on Energy, “confirming some easing of fundamental support for natural gas prices on a seasonally adjusted basis.”
Demand could surge over the next week as temperatures drop. Wood Mackenzie projects power sector demand could climb to around 34.7 Bcf/d, while residential and commercial demand, predominantly for heating, could reach 46.2 Bcf/d during the same period. At the same time, demand for LNG exports is expected to stay strong at over 14.0 Bcf/d.
Production averaged roughly 106.3 Bcf/d over the weekend, but dipped by around 440 MMcf/d on Monday to settle at 105.9 Bcf/d, according to Wood Mackenzie’s latest data.
Evans also pointed out that the current 166 Bcf surplus to the five-year average could flip to an 80 Bcf deficit by January 17 if the forecasted cold and resulting high demand play out. That shift, he noted, “would represent a tightening of the physical market on a seasonally adjusted basis.”
Although the broader trend appears to be upward, Evans warned that volatility still rules the day. “A break in the weather could still push prices back down to around $3.25,” he said, “even if the overall market trend continues higher.”
