Some more volatility today. The front month is up 10% on cold weather (the NYMEX close was $3.70 UD/mm), but next summer is only up a bit (the close was $3.42 US/mm). 

Production is down from 106.0 Bcf/d to 102Bcf/d on Monday, mostly due to the cold weather causing freeze offs. And with even colder weather expected to come, we are likely going to have more interruptions. 

When natural gas comes out of the well, it has a lot of associated water and other liquids. Natural gas mixed with these liquids is referred to as ‘wet gas’.  Wet gas is processed to remove these liquids (which can be sold off) to become ‘dry gas’.

When temperatures get especially cold, the water in wet gas can freeze in pipes and wells, ultimately interrupting the production process. So, while heating demand spikes on cold temperatures, production can be impacted too.  This is why storage is so important.

When this happens, the spot price will spike, like in January 2024 when prices at Dawn shot up to $9 CAD/GJ and spot prices at Henry Hub spiked to $13US/mm. Note that these are spot cash prices (gas for the next day) and not term prices (gas for the next month).  After temperatures return to normal, production returns to normal and the spot prices retreats.

Much like the tail wagging the dog, the spot price will swing around but the longer-term strips are not as volatile.