Henry Hub winter forward curve flouts volatility in cash, prompt futures markets

New York — A rout in Henry Hub cash and prompt futures prices recently has left the winter 2020-21 gas curve largely unscathed, as forward markets continue to anticipate tighter supply-demand fundamentals by late fourth-quarter.

On Sept. 24, cash prices at the Henry Hub continued to rebound from a recent 21-year low settlement. In the past three trading sessions, the benchmark index has climbed 60 cents, settling at $1.93/MMBtu on Sept. 24, preliminary data from S&P Global Platts showed.

In the futures market, prompt-month prices were also higher Sept. 24. In the same three-day period, the October contract has climbed more than 40 cents to $2.25/MMBtu.

Declines in Gulf Coast LNG feedgas demand and power burn, prompted by landfall of Tropical Storm Beta in East Texas, have tipped the regional market into oversupply.

Longer term, though, continued weakness in US gas production and an anticipated uptick in winter demand this season compared to last, have kept December, January and February calendar-month prices well-above $3 recently. On Sept. 23, that the three-month strip was assessed at an average $3.29/MMBtu – down just 6 cents from an annual high in early September, S&P Global Platts' M2M forward data shows.

Supply

The persistently bullish price outlook for this winter comes as US production continues to hover more than 8 Bcf/d, or about 9%, below a record-high monthly average of 95 Bcf/d in November 2019.

Steep cuts in drilling budgets and rig counts have precipitated the recent decline and could leave US production sputtering for months. At current activity levels, production would remain around the recent 87 Bcf/d level through at least mid-2021, according to a recent forecast from S&P Global Platts Analytics.

On Sept. 24, the US rig count was estimated at 308 – up from a 15-year low of 279 in July. Earlier this year, the US rig count totaled more than 840. In 2019, US drilling activity had reached a multiyear high when nearly 1,200 rigs were deployed, data published by Enverus DrillingInfo shows.

Demand

As US supply growth remains suspended in the months ahead, domestic and global demand for US gas should continue growing.

In the US market, a return to more seasonal winter temperatures this year would fuel a 2.6 Bcf/d rise in domestic heating demand from December to February, compared to the year-ago period, Platts Analytics forecasts show.

In the global market, rising LNG prices could also push US export volumes back toward full capacity. On Sept. 24., Platts JKM January derivatives prices settled at $5.55, with the prompt cargo market now trading at more than $4.90/MMBtu.

Stronger US netbacks to the JKM and to European destinations could see US terminal capacity reach full or near-full utilization by this winter.

Following the commercial startup of new Gulf Coast liquefaction trains this summer, US feedgas demand could rise to more than 11 Bcf/d by early next year, analytics data shows. On Sept. 24, US feedgas demand was estimated at 6.1 Bcf/d, as Gulf Coast terminals continue to recover from disruptions to operations caused by recent storms.