Wintry weather ahead for Northeast promises to lift regional gas demand, prices

US Northeast spot natural gas prices could be in for another rally ahead of the weekend as colder weather over the coming days promises to push regional demand back toward seasonal highs.

On Feb. 10, cash prices at market-area hubs in Boston and New York were down sharply again, falling for the fifth consecutive trading day. Algonquin city-gates registered the biggest decline, shedding nearly $4 on the day to trade around $4.50/MMBtu. At Transco Zone 6 New York, prices were off almost 60 cents to around $3.50/MMBtu, data from the Intercontinental Exchange showed.

With freezing weather forecast to hit the region soon, gas prices could be in for an abrupt turnaround.

Beginning Feb. 13, population-weighted temperatures in the Northeast are expected to plunge, dipping to around 27 degrees Fahrenheit before falling further to a projected 21 degrees on Feb. 14.

The anticipated surge in heating should lift total Northeast gas demand to over 32 Bcf/d over a three-day period, nearly 3 Bcf above the February average, forecast data from S&P Global Platts Analytics shows.

With colder weather also expected to hit the US Midwest this weekend, demand for Appalachian Basin gas is likely to spike, putting additional pressure on the region's already strained supply.

Demand, production

Current forecasts show population-weighted temperatures in the US Midwest dipping to the mid- to upper-teens from Feb. 12 to Feb. 14. The colder weather should lift total gas demand in the region to an average 28.8 Bcf/d over the three-day period – more than 2 Bcf/d above its current month-to-date average, data from Platts Analytics shows.

The spike in demand could potentially trigger an uptick gas in transmissions from the Appalachian Basin to the Midwest. Over the past week, outflows from the Northeast to the Midwest have averaged about 5.7 Bcf/d but could edge higher by this weekend as Midcontinent gas demand rises.

In the Northeast market area, the price impact of stronger demand could be magnified by recent production weakness from the Marcellus and Utica shales. Following a steep drop in output across Appalachia at the start of the new, production levels have continued to drift lower this winter.

In February, Appalachian production has averaged just 32.4 Bcf/d – down from levels in the upper 34 Bcf/d range in late December. Earlier this month, regional production briefly dipped to around 31 Bcf/d in what appeared to be a freeze-off.

Despite potential supply tightness in the days ahead, forward gas prices in the Northeast market area have been on a steady downward trend since late last week. After topping $25 on Feb. 2, the Algonquin balmo forward contract has fallen sharply, settling at just $14.93/MMBtu on Feb. 9. Over the same period, the balmo price at Transco Zone 6 New York has tumbled from nearly $11 to settle most recently at $7.26/MMBtu, S&P Global Platts M2MS forwards data shows.