U.S. Natural Gas Skyrockets as Market Awaits Freeze-Offs

(Bloomberg) -- Natural gas futures soared as much as 17% in the U.S. as forecasts showed a deep freeze returning in mid-February after this week's cold blast, intensifying concerns about tight supplies of the heating and power-plant fuel.

Gas supplies in Oklahoma, the Texas Panhandle and Arkansas tumbled 22% Wednesday from a day earlier as frozen pipelines limit the flow of fuel, data from BloombergNEF show. An arctic blast is making its way through the Plains into Texas this week brining snow, ice, and temperatures as low as -20 Fahrenheit (-29 Celsius), with the coldest weather expected over the Midwest, according to NatGasWeather.com.

“This weather system has really strengthened, particularly in the Midwest and in the producing region,” said John Kilduff, co-founder of Again Capital LLC. “There is certain to be freeze offs, there is certain to be operational hiccups in terms of transmission and transport via pipelines of gas molecules.”

Natural gas has been unusually volatile in recent weeks as traders try to gauge how well-supplied the market will be by the end of the winter. Prices surged the most on record last week amid a short squeeze ahead of the February contract expiration. Though gas stockpiles are only 1% below normal for this time of year, exports are near a record and the deficit is poised to expand as frigid weather stokes demand.

“The combination of increased heating demand and reduced production due to freeze offs will tighten the market through the next two weeks,” said Peter Rosenthal, head of power and North American gas at Energy Aspects.

Gas for March delivery settled 16% higher at $5.501 per million British thermal units in New York. Prices have climbed about 45% so far this year. The premium for March gas over April contracts, a spread known as the “widowmaker” due to its volatility, reached a two-month high of 55 cents.

The cold blast is expected to lower production and set up a demand scenario where more than 700 billion cubic feet of gas could be withdrawn from storage over the next three weeks, said Eli Rubin, senior energy analyst, EBW AnalyticsGroup.

“When we get a cold blast, it has a much higher impact on the market than it did in the past,” Rubin said. “Demand intensity is higher with more people working from home. You have people heating their homes. And you have offices that also need to be heated.”