Cooling weather halts Henry Hub gas futures rally as supply risks loom

NYMEX Henry Hub futures prices pulled back from recent highs in Sept. 7 trading as cooler temperatures and lower power burn demand eased market concerns over continued offshore production weakness.

By late session, fourth quarter contract prices were down nearly 15 cents. Prices for January and February lost nearly as much, bringing the winter-season futures back from the brink of $5/MMBtu.

The drop in prices on Sept. 7 leaves near-term futures trading around $4.60 to $4.80/MMBtu, putting the brakes on a roughly two-week rally spurred on largely by the market impacts of Hurricane Ida.

The pause in bullish sentiment comes as peak-summer temperatures across the US begin to fade, easing power burn demand – principally from generators along the Gulf Coast and the Eastern Seaboard.

In the Northeast, population-weighted temperatures have dropped to around 70 degrees this month, down from the low-80s in late August. In the Southeast, temperatures have averaged 78 degrees in September, down from the mid-80s late last month, S&P Global Platts Analytics data shows.

Cooler weather in regions hard hit by the storm has snuffed out peak-summer demand from power generators. In the Northeast, power burns are down about 2.5 Bcf/d since late August; in the Southeast, burns have dropped about 2 Bcf/d. Weaker demand in other regions has helped pull US power burn down to an average 33.2 Bcf/d this month, compared with levels over 41 Bcf/d in late August.

Forecast data from Platts Analytics shows cooler temperatures and lower burns enduring through at least mid-month, potentially giving gas futures prices continued reprieve from the late-summer rally.

Supply risks

Continued offshore production weakness related to Hurricane Ida and a persistent gas storage deficit pose potentially serious risks to US supply and could yet rekindle the rally in futures prices.

On Sept. 7, US offshore production was estimated just below 600 MMcf/d, up from a recent low at 300 MMcf/d, but still down sharply from a pre-storm average around 2.7 Bcf/d, Platts Analytic data shows.

According to US Bureau of Safety and Environmental Enforcement, an estimated 78% of offshore natural gas production remains offline more than a week after Hurricane Ida made landfall.

While US Gulf of Mexico oil and gas production is typically quick to recover in the days immediately following a hurricane, damage caused by Ida to onshore port infrastructure, roads and power lines has slowed the recovery effort.

As operators return to offshore platforms, Platts Analytics anticipates a slow but steady rebound for Gulf of Mexico gas production over the next week. Tighter supply in the US market, though, has and will continue to limit available gas for injection to storage.

On Sept. 2, total US gas inventory was estimated at 2.871 Tcf as of late August, according to data published by the US Energy Information Administration. Storage levels are now 222 Bcf, or about 7%, below the prior five-year average and 579 Bcf, or nearly 17%, below their corresponding 2020 level.

For the reporting week ending Sept. 2, analysts are predicting another estimate from EIA showing an injection that registers less than half the five-year average. For the two reporting weeks that follow, Platts Analytics is predicting another series of below-average injections that could further widen this season's inventory deficit and provide more fuel for another rally in the gas futures and forwards markets.