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January 2017 gas extends losses amid returning mild weather

After a settle 1.9 cents lower at $3.415/MMBtu ahead of the weekend, January 2017 gas remained weak in overnight trading leading up to the Monday, Dec. 19, open, as milder weather forecasts continue to feed anticipation of diminished heating demand and a reprise of modest storage withdrawals in the weeks ahead. At last look, the January 2017 natural gas front-month contract was at $3.352/MMBtu, down 6.3 cents, after losing a collective 39.4 cents in the past six sessions.

Updated National Weather Service outlook maps show above-average temperatures blanketing the bulk of the eastern U.S. and a section of the south-central U.S. in the upcoming six- to 10-day period, before expanding in scope further out to the eight- to 14-day period to overtake the entire East, nearly all of the central U.S. and much of the Southwest to ultimately encompass a majority of the country.

Longer range, the January 2017 through March 2017 three-month outlook from the National Oceanic and Atmospheric Administration shows above-average temperatures spanning the eastern quarter of the U.S. and spreading across the lower tier of the country.

Predominantly mild weather looks to sap heating demand and limit the amount of natural gas drawn from underground storage facilities, which should reverse the brief run-up in inventory erosion. Natural gas inventories logged their first triple-digit withdrawal of the season during the week ended Dec. 9, for which the U.S. Energy Information Administration detailed a 147-Bcf pull from stocks that bested predata estimates and historical averages.

The reported storage withdrawal was an upside miss against the full range of outlooks coming into the day that had called for a drawdown of anywhere from 117 Bcf and 144 Bcf and an average anticipated 132-Bcf pull. It was well above both the 79-Bcf five-year-average withdrawal and the 46-Bcf draw seen in the corresponding week in 2015. The week's data took total working gas stocks to 3,806 Bcf, turning the year-on-year surplus to a deficit of 50 Bcf and shrinking the year-on-five-year average overhang to 186 Bcf.

For the next weekly storage data due out Dec. 22 that will cover the week ended Dec. 16, traders and analysts anticipate yet another impressive draw from stocks ranging from 177 Bcf to as much as 204 Bcf, which would compare against a 101-Bcf five-year average withdrawal and a 33-Bcf drawdown during the same week in 2015.

The EIA's latest "Natural Gas Weekly Update" for the week to Dec. 14 showed that total U.S. gas consumption rose 10% week on week, as power burn climbed 8% and residential/commercial-sector demand jumped 17%. Industrial-sector consumption remained flat and exports to Mexico fell 6%.

Mid-range and longer-range weather projections look to reverse the sharp increase in demand, however, implying that there would be less natural gas storage required to meet the remaining load requirements.

In cash trading, price activity for natural gas moved Dec. 16 for Saturday-through-Monday delivery was choppy, as weather and the typical weekend inclusion in the revised offering drove mixed demand expectations.

Looking at the key delivery locations, a nearly 23-cent gain drove Chicago spot gas pricing to an index at $3.893/MMBtu, as a scant less-than-1-cent uptick nudged PG&E Gate hub price action to an average at $3.684/MMBtu. Conversely, a $2.83 decline steered Transco Zone 6 NY day-ahead gas price activity to an index at $4.250/MMBtu, as a better-than-5-cent slump took benchmark Henry Hub cash gas pricing to an average at $3.505/MMBtu.

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In regional terms, Midwest next-day gas price activity added a little over 14 cents on the session to average at $3.661/MMBtu, as West Coast spot gas pricing notched a better-than-15-cent increase in deals averaging at $3.557/MMBtu. By contrast, Northeast cash gas prices tumbled by nearly $1.64 on average to an index at $4.016/MMBtu, as Gulf Coast day-ahead gas price action floundered by roughly 4 cents to an index at $3.422/MMBtu.

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Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.