US Northeast spot gas prices climb on tighter market fundamentals

A drop in gas production and rising gas-fired power demand have tightened Northeast gas markets, lifting spot gas prices and narrowing basis discounts to cash Henry Hub.

Algonquin city-gates, a gas pricing benchmark for New England demand, has nearly erased its substantial spread to cash Henry Hub over the last week, shrinking its discount by nearly 70 cents since July 9 to 2.50 cents on July 15. An ascendant Algonquin city-gates explains the change, with preliminary settlement data showing an increase to $3.66/MMBtu on July 15 from $2.99/MMBtu on July 9.

To the south, cash spreads in Appalachia have also come in, albeit to a lesser extent. Cash EGTS South, formerly named Dominion South, has seen its discount to cash Henry Hub narrow to 63 cents in July 15 trading, down 45 cents since the start of the month.

A heady combination of lower production and escalating demand have likely driven the pricing dynamic.

Northeast gas production volumes have tumbled around 1 Bcf over the last week, dropping to a two-week low of 32.4 Bcf on July 15, according to S&P Global Platts Analytics data. Regional production has averaged 32.7 Bcf/d in the first 15 days of July, down 913 MMcf/d from the same period in June.

The largest production losses were concentrated in northeast Pennsylvania and West Virginia, with smaller decreases observed in Ohio and southern Pennsylvania.

Platts Analytics expected Northeast production to remain below 33 Bcf/d through July 22, which would be the longest span of sub-33 Bcf/d production since the 12-day streak Feb. 6-17. Northeast gas production is on track to have its strongest year on record in 2021, averaging 34.3 Bcf/d for the first seven and a half months of the year.

Turning to the demand side, higher temperatures were expected to boost regional gas demand to 17.17 Bcf/d July 15, up 321 MMcf/d on the day and 2.3 Bcf higher than seven days earlier. Power sector demand has provided the bulk of the increase, climbing 313 MMcf/d to 10.86 Bcf/d on July 15, to cope with higher cooling demand.

The National Weather Service forecast that Boston would see a high of 91 degrees Fahrenheit and a low of 70 F on July 16, up from mid-July norms in the low 80s F. Similarly, the high in Washington was forecast to rise to 96 F on July 16, up from a 30-year average of 90 F for this time of the year.

The tighter Northeast cash spreads have not extended to the forward curve, suggesting that higher prices are not structurally supported beyond the near-term heat wave. Algonquin city-gates' remainder-of-summer strip currently sits at a 45-cent discount to Henry Hub, according to Platts Analytics M2MS forward curve data, down just 5 cents from the start of the month.