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Northeast spot gas rally belies lengthening winter supply outlook

Highlights

Algonquin surges to $9.64, Transco Z6 NY to $7.30/MMBtu

Res-comm demand to top 15 Bcf/d, Nov. 22: Platts Analytics

Storage, production, weather outlooks cool forward market

Spot gas prices across the US Northeast surged in Nov. 22 trading, reaching highs not seen since last February amid a blast of wintry weather that's expected to continue into early December. The bullish short-term outlook, though, comes despite growing indications that supply will be more abundant this winter than previously anticipated.

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At Boston's Algonquin city-gates hub, the cash market more than doubled from its prior settlement to around $9.64/MMBtu. At New York's Transco Zone 6 and Texas-Eastern M3 locations, spot prices were trading at $7.30 and $6.97/MMBtu, respectively, marking a gain of roughly 50% from the prior session, data from Intercontinental Exchange showed.

The surge in prices accompanies a steep drop in regional temperatures over this past weekend into low-40s and even mid-30s Fahrenheit – a colder-than-average weather pattern that's forecast to continue into the first week of December, forecast data from S&P Global Platts Analytics shows.

Colder weather pushed residential-commercial gas demand in the Northeast to nearly 12.4 Bcf/d Nov. 22, matching the seasonal high recorded just three days prior. Current forecasts show demand climbing further to 15.1 Bcf Nov. 23 and averaging about 14.3 Bcf/d through the end of this month.

The uptick in demand reverses November's below-average trend for Northeast res-comm, which has largely unperformed compared with the historical average. In November, gas demand from homes and businesses in the Northeast has averaged about 10 Bcf/d, undershooting the prior five-year average by over 600 MMcf/d, Platts Analytics data shows.

Winter outlook

After a slow start to the heating season, the influx of colder weather promises a bullish run for Northeast gas prices over the next week or so as the region begins drawing down storage inventories.

Beyond early December, though, the outlook for Northeast gas prices appears less bullish.

In recent weeks, forwards prices at hubs in Boston and New York are down sharply from October highs amid growing signs that winter gas supply could be more abundant than previously anticipated.

Since the start of November, mild temperatures in the Northeast have left regional inventories relatively untouched, despite this season's below-average storage build, which crested just below 1 Tcf. Current estimates from Platts Analytics show inventories at 975 Bcf – now at par with the prior five-year average.

Potentially adding to winter supply are recent gains in Appalachia production. Earlier this month, output from the Marcellus and Utica eclipsed its year-ago record, hitting 34.7 Bcf/d. Following recently updated production guidance offered by Appalachia producers on third-quarter earnings calls, it's conceivable that output could surpass 35 Bcf/d this winter. Both Coterra Energy and National Fuel Gas have projected an increase this winter as they move to fill their respective reserved capacities on Transcontinental Gas Pipe Line's Leidy South expansion, scheduled for startup Dec. 1.

On the demand side, an updated seasonal forecast from the US National Weather Service offers a tamed outlook for Northeast temperatures and demand from December to February. According to the forecast published Nov. 18, New England will see a 50% to 60% chance for above-average temperatures over the period. In states farther south, the upside risk is about 40% to 50%.

At Algonquin city-gates, the December contract has fallen about 40% since early October to the mid-$11s/MMBtu. The January and February contracts, meanwhile, have both declined about 20% to the $19- to $20/MMBtu range – still historically high for both winter months.

At Transco Z6 New York, the peak winter contracts are also down about 20% from October highs to the mid-$6s for December and the low-$10s/MMBtu for January and February, S&P Global Platts' most recently published M2MS data shows.