ANALYSIS: Southeast, Texas gas storage surpluses risk another cash-market rout at Henry Hub

New York — Spot gas prices at the Henry Hub could see another selloff before the start of the coming winter's heating season as inventories in the US Southeast and Texas test capacity limits.

In morning trading Oct. 6, the Henry Hub cash market was down just 3 cents to around $1.89/MMBtu, according to preliminary settlement data from S&P Global Platts. Earlier in the month, the benchmark gas index had tumbled to just $1.335/MMBtu – on par with a 21-year low recorded in late September.

Recent volatility in the cash market has accompanied rising storage levels in the Southeast and Texas, steadily falling seasonal gas demand and recent fluctuations in feedgas consumption at Gulf Coast LNG export terminals.

On Oct. 6, inventory levels in the Southeast were estimated at a record-high 600 Bcf as the region's storage caverns and salt domes remained in uncharted territory, testing capacity limits.

In Texas, 2020's storage surplus has also broken records. In late September, inventories in the state reached their highest on record at 495 Bcf. Current stock estimates at over 486 Bcf are just below prior record levels recorded in 2016, S&P Global Platts Analytics data showed.

Within the US Energy Information Administration's South Central region, which includes Texas and six of its neighboring states, inventories were estimated Oct. 1 at 1.304 Tcf as of the week prior – just 66 Bcf below the previous record highs recorded in November 2016.

Demand

Weaker seasonal demand levels recently have added to the pressure on Henry Hub gas prices.

As high summer temperatures across the Southeast have given way to cooler weather, regional power burns have dropped recently to below 9 Bcf/d – down from levels of over 10 Bcf/d in September. In Texas, power burn demand has remained in the low 4 Bcf/d range in October, also down sharply from prior-month levels at over 5 Bcf/d, Platts Analytics data showed.

Volatility in feedgas demand at US LNG export terminals, caused largely by recent tropical cyclone activity in the Gulf of Mexico, has also weighed on benchmark Henry Hub prices.

Since late September, feedgas demand in the Southeast has bounced between just 1.9 Bcf/d to levels as high at 4.2 Bcf/d, amid disruptions caused by recent storm activity. Terminals along the Texas Gulf Coast have experienced similar volatility, with deliveries ranging from around 1.6 Bcf/d to nearly 3.8 Bcf/d. On Oct. 1, feedgas demand levels in the Southeast and Texas were estimated at 4.2 Bcf/d and 3.6 Bcf/d, respectively, according to Platts Analytics data.

Forwards prices

While Henry Hub cash prices have fallen sharply from annual highs in late August, and remain susceptible to downside risk in the weeks ahead, the market continues to remain bullish on the outlook for winter-season prices at the benchmark location.

On Oct. 5, the December, January, February strip settled at an average $3.23/MMBtu, down just 17 cents from an annual high at $3.40/MMBtu in late September, S&P Global Platts data showed.