Weekly update 1/19/25 - 1/25-24

Weekly Update 1/29 – 1/25:
Two things of importance this week to consider. First and always is the weather and second and always is the supply/demand storage balance. Models have been having some trouble the last four days in holding the Greenland blocking in place. Which is showing up as the arctic cold being displaced and not being injected into the North American mid-continent. The Polar vortex is still predicted to continue elongating though February and early March. Which should keep furnaces burning and gas being consumed. This is a longer term impact on NG pricing, especially with models varying from run to run showing brief run ups in temperature the last few days of January, which happen to coincide with the February contract roll-over. So, I will briefly touch upon the weather set up, but of more importance this week is the Artic cold and frozen precipitation making its way to the Gulf Coast. Which will have a tremendous impact on well head freeze offs and the LNG production facilities. I believe this is going to set up a one-two punch, if you will for the next 7-10 days of trading.
Weather impacts. The weekend GFS weather data trended 3 HDDs warmer, while the EC trended 6 HDDs colder. Both maintain a frosty Arctic Blast the several few days, although the EC was numerous HDDs colder than the GFS with a weather system into the Midwest and East Jan 28-30. Both then forecast a much milder US pattern gaining ground over the US the first few days of February, although with the GFS teasing a new frigid blast pushing into the Midwest around Feb 2-4. Sunday night and Monday opening we can expect an emotional reaction on the models turning warmer since Friday mid-day and the MLK trading holiday tomorrow. There was a great deal of profit taking as of Friday EOD, with the price moving almost $1.00 off the lows of the month. I would hope people would be smart enough to take some profits off the table after such a big move! But, for the week there were two 60 cent moves and one 40 cent move for the week, and I see no change in this pattern until we get into the second week of February and the back half of winter starts to verify for storage amounts. The weather this week is going to be down right brutal in the US. The first concern are the well head freeze-offs. Today, 1/19/25, production is down to 101 BCF/d with freeze offs in the Bakken and the Marcellus. We are expecting the late cycle revisions to revise production down further. There is a belief that production might hit the lows seen last year of 90 BCF/d. “We could see 10 Bcf/d or more of lost production due to freeze-offs” during the cold snap, said Huenefeld. These could include “substantial disruptions” not only in the Marcellus Shale, but potentially the Midcontinent, Haynesville Shale and Permian Basin, he said. Reduced production, in turn, “could exacerbate the storage draw” for the week ending Jan. 24, which may exceed 300 Bcf, Huenefeld said. That’s right industry followers are now confirming that we can see a 300 BCF withdrawal this week! This would bring storage under the 5-year average for the first time since last winter. The cold is here to stay for the next seven days and that will continue to be a big factor on production and heating demand. As the week wears on and the models battle back and forth, we can expect that daily model runs to keep daily pricing volatile. So be prepared for daily swings 20-30 cents again. Long term I am still in the colder than normal belief. This continued elongation of the Polar Vortex is not predicted to end, we just need the models to get on board. But this I believe will happen in time.
Supply/demand storage concerns: Well heads, pipelines and Europe! As discussed above, production is being curtailed, via Mother Nature. Well head freeze offs have been a constant concern in the Bakken area in North Dakota. This has skyrocket pricing all over the US with Henry Hub spot price currently $10.70. Spot pricing in the North East is currently trading over $100.00 BCF. While there is limited contribution to the overall supply structure coming out of the Bakken, it does supply more NG than the GOM and it is a good barometer for infrastructure issues with the production and transportation of NG. As the temperature drops the water in the gas condensate freezes and prevents the gas from flowing, both at the well head and at the compressor stations which move NG in the pipeline. It only need to be a few degrees below freezing to create a giant headache for the production and distribution of NG. Wood Mackenzie also noted that, “A long list of pipelines across the U.S.” have already posted operational flow orders (OFS) and weather alerts, anticipating the shocks of extreme cold temperatures that could linger until Wednesday or Thursday. “The complete list of pipelines that have issued OFOs or OFO warnings is too long to include,” Wood Mackenzie said in a separate update. With all 50 US states predicted to be below freezing and the major production areas to be 5-20 degrees below freezing, we can start to see where and why production would drop for the next 5 days. Take above normal HDD, then add in drop in production, and it is a nice recipe for bullish momentum. LNG terminals have been running at historic levels the last three days. We are waiting for confirmation for the first 16 BCF/d! Which I see happening today or tomorrow. Now the big worry sometime Wednesday morning is if it is too cold to produce LNG at the coast facilities. There is a historic winter storm predicted to lay down frozen precipitation from Houston to Savannah, Ga along the I-10 corridor. Which is the heart of LNG country! If you remember last year, Freeport experienced a severe freeze off which disrupted LNG production and needed repair for over 6 weeks. This was the beginning of the downturn in NG pricing last year to the lows in February-March 24. This season is a bit different in that there is a concern that the US is colder than normal and NG storage is going to be below the 5-year average. But Institutional traders love a reason to sell and take our money. Remember history may not repeat, but it does rhyme! So, the expectation is that LNG production will keep bullish momentum on pricing, but keep a keen eye on facility issues to rug pull the LNG card.
This is not investing advice, please trade at your own risk. But I did take positions the end of the day Friday, with the expectation that there will be big disruptions in the production of supply. Which I will hold hopefully until the EIA report. I do expect trading to be a bit light due to the US futures market having abbreviated hours. Which I believe will be a good set up for the news of freeze offs coming in Monday afternoon and night for open on Tuesday. I expect and will be trading the big daily bounces once the market opens in London tomorrow, but will be prepared for the NY market to be closing early. I will be watching LNG facilities for signs of distress with production numbers declining. If I see production of LNG dropping, I will be expecting it to temporarily impact a downward trend on pricing. Lots and lots to be watching out for.
Keep it burning boys!