Unable to escape a bearish fundamental outlook informed by production outperformance and mild December weather, regional natural gas forwards saw heavy discounts during the Nov. 30-Dec. 6 trading period, NGI’s Forward Look data show.
National benchmark Henry Hub fell to $2.575/MMBtu for January delivery, a 24.4-cent slide versus week-earlier prices.
Winter bulls found little refuge throughout the rest of the Lower 48. In the Midwest, January fixed prices at Chicago Citygate tumbled 33.6 cents for the period to end at $3.084. In the Rockies, Cheyenne Hub plunged 41.7 cents to $2.977 for January.
[Market Dynamics: Listen in as NGI digs into the myriad pieces that make up the winter supply/demand puzzle and how they may impact prices through the heating season and beyond. Tune into the Hub & Flow podcast now.]
Sub-$2.50 Gas to Curb Production in 2024?
Much of the bearish move week/week coincided with a steep plunge in Nymex futures on Wednesday, when contracts fell by double digits across the curve.
The sharp sell-off for natural gas Wednesday followed an update from ExxonMobil that pushed back the expected completion of its Golden Pass LNG terminal to late 2024, with first exports now expected in 2025.
“This is six months later than we had expected and likely a driver of the commodity underperformance” Wednesday, analysts at Tudor, Pickering, Holt & Co. (TPH) said in a note. “After following up with the company, we have now modeled Train 1 contributing 800 MMcf/d of gas demand beginning in January 2025.”
Naturally, regional prices were not immune to the broader impacts of this material downward revision in liquefied natural gas feed gas demand expectations heading into the second half of 2024. This only compounded the bearish pressure already being applied by ample storage, booming production and lackluster early winter heating demand.
Following Henry Hub, regional prices posted sharp discounts midweek across the Lower 48.
After accounting for the expected “shift in timing of LNG demand impacts” from the Golden Pass delay, the TPH analysts said they were now modeling around 4.1 Tcf in storage for end-October 2024.
“Ultimately, we think the market will force the industry to reconsider drilling and completion activities in gas basins in 2024 (partially via the drillbit but mostly on completions),” the TPH analysts said. Prices along the curve “should settle in below $2.50…as the market will likely look to curtail supply (completion deferrals) to mitigate the higher inventory balance in 2H2024 with the lack of Golden Pass helping demand.”
EBW Analytics Group estimated a 165 Bcf reduction in natural gas demand attributable to the later-than-expected startup for the first train at the Golden Pass terminal.
The delay “landed a crushing blow across the Nymex forward curve,” EBW analyst Eli Rubin said.
“For a gas market in search of demand, postponing the startup of Golden Pass past the November 2023 to November 2024 storage cycle will inevitably add to more gas surpluses,” Rubin added. “Additionally, although Exxon provided little additional information on Golden Pass Trains 2 and 3, initial delays may postpone subsequent LNG feed gas demand, further decrementing demand expectations and helping to explain the crash in natural gas prices.”
Strong Withdrawal Steadies Prices
Nymex prices appeared to stabilize on Thursday after the U.S. Energy Information Administration (EIA) unveiled a 117 Bcf withdrawal from Lower 48 storage for the week ended Dec. 1. That slashed the surplus to the five-year average to 234 Bcf for the period.
“Compared to degree days and normal seasonality, this week’s report is approximately 2.6 Bcf/d loose versus the prior five-year average,” Wood Mackenzie analyst Eric McGuire said of the latest EIA print. “This is a tightening of 1.1 Bcf/d week/week. The previous five weeks have averaged 1.1 Bcf/d loose.”
Analysts at Gelber & Associates noted the market’s muted reaction even as the print landed well to the bullish side of expectations.
“Even such a bullish withdrawal seems to have done relatively little to shake the prevailing bearish sentiment given the current oversupply, whose chances of persistence through the winter continue to increase as the weeks pass,” the Gelber analysts said.
East Coast Basis
Still, amid broader weakening in winter pricing, basis strengthening did occur at a number of East Coast hubs during the Nov. 30-Dec. 6 period, implying local concern over pipeline constraints heading into the peak winter months, Forward Look data show.
Transco Zone 5 and Cove Point, in particular, rose notably week/week for January and February.
Cove Point basis finished the period at plus-$3.093 for February delivery, up 52.3 cents, while January rallied 26.5 cents to finish at plus-$3.890. Transco Zone 5 saw similar winter basis gains.
Transco Zone 6 NY January basis rose 29.1 cents, though February basis climbed just 4.1 cents, Forward Look data show.
Transco notified shippers during the period of ongoing unplanned maintenance restricting certain north-to-south flows through Station 195. That work was expected to continue through the end of the weekend.
The operator also put an operational flow order (OFO) into effect midweek for Zones 4, 5 and 6 due to “limited flexibility to manage imbalances” on its system.
Transco was one of a number of pipelines in the eastern Lower 48 to issue an OFO coinciding with a stretch of chillier temperatures regionally during the week, Wood Mackenzie analyst Kara Ozgen said in a recent note to clients.
Colder-than-normal conditions for the East were seen subsiding by the end of the week.
“Many pipes, mainly in the East,” had declared OFO conditions roughly a week earlier, “but they did not last as long, as the cold dissipated,” Ozgen said. “This reflects this winter season’s relatively slow start and short-lived cold shots thus far.”
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