ANALYSIS: Appalachian gas production record weighs on market's bullish winter sentiment

New York — Appalachian Basin gas production edged up to its highest on record Oct. 30, dampening recent cash and forward-market bullishness over the promise of colder weather.

At Dominion South, spot gas prices were down 61 cents from the prior-day settlement to $1.24/MMBtu. At Texas Eastern M2 receipts, the market sank more than 80 cents to trade at just 55 cents/MMBtu, preliminary settlement data from S&P Global Platts showed.

Over the past week, near-record production levels have also put pressure on November forwards prices.

At Dominion South, the November contract expired Oct. 28 at an eight-month low. Trading as the balmo contract, November gas prices at Dominion have continued falling, settling Oct. 29 at just $1.68/MMBtu.

At Texas Eastern M2, the November calendar month expired Oct. 28 at its lowest on record and has continued to weaken as the balmo contract, falling to just $1.53/MMBtu on Oct. 29, S&P Global Platts' most recently published M2MS data shows.

Near-term market pressures come as many producers begin ramping up output ahead of the heating season when Appalachia could be called upon to help bridge a shortfall in US associated gas supply.

On a recent third-quarter earnings call, executives at EQT said they have already restored output at wells previously curtailed this autumn. At least two other Appalachian producers, including Cabot Oil & Gas and CNX Resources, have also previously acknowledged similar curtailments – volumes that may have made their way back online only recently.

Winter weather

While Appalachia's cash and balmo-forwards prices are facing pressure recently, higher demand and prices could be just around the corner.

Across the US Northeast, gas demand is already on the rise with colder-than-normal temperatures. By Nov. 2, regional demand is forecast to surpass 24 Bcf/d – about 8 Bcf/d above its October average and its highest level since March 2020, S&P Global Platts Analytics data shows.

Looking ahead, temperatures in the New York City and New England market-areas are forecast to dip more than 10 degrees below normal by Oct. 31, adding significant upward pressure on heating demand.

The Boston area's Algonquin city-gates hub has already seen significant volatility in late October with colder temperatures. From Oct. 28 to Oct 29, cash prices at the hub jumped more than $4 to settle at $6.79/MMBtu. On Oct. 30, prices were down sharply to $3.75/MMBtu, S&P Global Platts preliminary settlement data showed.

Recent increases in demand have also allowed cash basis at premium demand centers, such as Texas Eastern M3 and Transco Zone 6 NY, to close within $1 of Henry Hub after sitting more than $2 below the benchmark the week of Oct. 18. On Oct. 30, both hubs were trading in the mid-$2s/MMBtu and settled just 64 cents and 56 cents, respectively, behind Henry Hub.