January northeast nat gas prices sink from year ago

January spot natural gas prices on seven key demand indexes in the US northeast came in significantly lower than year-earlier values amid a comparatively mild winter so far and large increases in production.

The set of indexes, including major hubs like Algonquin Gas Transmission Citygates and Transco zone 6 New York, averaged between 55pc and 74pc lower than their values in January 2018, when extremely cold weather lead to a spike in demand and record-high spot prices. Zone 6 New York last month reached only as high as $17.62/mmBtu, a far cry from its January 2018 record high of $136.72/mmBtu.

Prices at those indexes also came in at least a fourth lower than their January bid week prices, showing actual demand was much lower than market expectations at the beginning of the month. The largest deficit was at Transco zone 5, which in January averaged 45pc lower than its bid week price.

Regional power output can serve as an indicator for heating demand. The New England region on 1-26 January produced 9.8TWh of electricity, down by 7pc from a year earlier, according to the most recent data from the Edison Electric Institute. The mid-Atlantic region in that time period produced 34.9TWh, also down by 7pc on the year.

Increased natural gas output from the nearby prolific Appalachian region has put a damper on prices as well. Gross gas output from Appalachia, the largest US producing area by volume, rose in December to a record 31 Bcf/d (878mn m³/d), 16pc higher than a year earlier, the US Energy Information Administration (EIA) said. January production is expected to top 31.3 Bcf/d.

The midcontinent region experienced a spike in heating demand this week as an outbreak of Arctic air brought temperatures there well below freezing, with some of that bitterly cold air reaching into parts of the northeast. But overall temperatures were milder to the east, leaving prices in the region below the one-year highs they reached during an earlier cold snap in January.

Despite multiple winter weather events in the region last month, storage facilities in the northeast steadily ate away at year-on-year deficits in inventory levels. They finally closing the gap from their year-earlier average in the week ended 18 January and last week stood slightly higher than the year earlier level at 257 Bcf, according to the EIA.

The security of enough gas in storage was not the sentiment the market expected earlier in the season, after a hotter-than-usual summer and early fall cold prevented inventories from recovering from the prior winter's unusually frigid weather.

But beginning in December the region fell in step with a nationwide lackluster winter season. At the beginning of February there is "simply not enough winter heating demand left" at this point to drive end-march total US storage below 1 Tcf, analysts with Barclays Commodities Research said. "Rebounding production and weak cash prices during recent cold spells also eroded our confidence in another rally."