BY – Spot gas prices surged to all-time highs across much of the United States during the Feb. 7-12 week as blistering cold polar air gripped the country, driving up heating demand, curbing production, and wreaking havoc on infrastructure. Fueled by spikes to as much as $600 in the Midcontinent at the end of the week, the NGI Weekly Spot Gas National Avg. soared to $16.825, up $13.255 on the week.
Momentum in the cash markets had been slowing building as forecasters warned that a train of winter weather systems would take aim at the Lower 48. The north and central portions of the country were on the receiving end of the initial blast, which sent temperatures plunging and dumped several inches of snow throughout the region, with more on the way.
OGT gas traded Friday as high as $600 for delivery through Tuesday, to accommodate for the Presidents’ Day holiday. The Oklahoma pricing hub averaged the Feb. 7-12 period at $92.445, up $89.530 week/week. Chicago Citygate hit a $250 high in trading for the four-day period and went on to average $26.595 cents higher on the week at $29.600.
The blanket of polar air stalled out for a couple of days before descending farther south into Texas and expanding eastward. By Friday, though, the mercury in West Texas had tumbled, causing pipeline freeze-offs. RBN Energy LLC said about 1.5 Bcf of Permian Basin associated gas had come off the grid day/day.
Meanwhile, the state’s electric grid operator, the Electric Reliability Council of Texas (ERCOT), warned that power demand could set a record by Monday morning. ERCOT was working with generators and transmission operators to ensure the system was prepared for what local forecasters said would be the coldest weather in 32 years. Even Houston could see as much as 3 inches of snow.
Houston Ship Channel traded to a $225 high for gas delivered through Tuesday. The pricing hub ultimately averaged $36.465 above the prior week at $39.405.
West Coast markets also got in on the action as the polar Arctic air was seen hovering over the Pacific Northwest and into California for the next few days. Cheyenne Hub jumped $40.70 week/week to average $43.630 but traded as high as $350 on Friday. SoCal Citygate averaged $30.22 higher on the week at $33.475. Prices for gas delivered over the four-day period, however, shot up to $195.
Wood Mackenzie reported that the Aliso Canyon has drawn down heavily over the last week, pulling out a total of 2.57 Bcf. These withdrawals have been possible via condition 2 of the current withdrawal protocol, which went into effect if Aliso’s inventory was above 24 Bcf in the months of February or March. However, now that the region has aggressively withdrawn inventories to cope with the surge in demand, “condition 2 will no longer be in effect,” Wood Mackenzie said.
Over on the East Coast, the volatility that transpired this week in places like New England and New York now seems like small potatoes when compared with the action in the Midcontinent and Midwest. The highest price recorded in the region was at Iroquois Zone 2, where prices climbed as high as $17 in Friday trading for gas delivered through Tuesday. Weekly spot gas averaged $2.395 higher on the week at $10.610.
‘Naked’ Ahead Of Polar Cold
Staring down some of the coldest weather in recent memory, futures traders struggled to launch March prices much higher than they were at the start of the week.
The prompt-month contract settled Friday at $2.912, up only 3.0 cents from where it settled Monday.
Mobius Risk Group questioned the market’s apparent disregard for the coming span of bitterly cold weather. “We would caution those with naked short interest to consider how tenable a sub-$3.00 index price at the Henry Hub is with cold polar weather intensifying through the weekend.”
EBW Analytics said although there is some justification in keeping March futures relatively intact — namely that storage levels are sufficient to get the market through winter even with the brutal cold — bullish catalysts remain.
The firm pointed out the “substantial” possibility that models are pushing warmer air too quickly. The latest model runs show the cold subsiding by the last week of February, with mild conditions currently forecast to return over most of the United States.
Nevertheless, EBW said the bitter blasts of cold portend “enormous” storage withdrawals for the next couple of weeks, and additional, more severe freeze-offs are likely.
On Thursday, the Energy Information Administration (EIA) reported that storage inventories in the Lower 48 fell by 171 Bcf to 2,518 Bcf. Though the figure fell short of market expectations near 180 Bcf, the draw managed to swing the year/year surplus to a 9 Bcf deficit.
“When the market reopens next Tuesday after the holiday weekend, the picture for gas could still be bullish,” EBW said.