South Central gas storage nears 5-year average, cooling NYMEX winter rally

A series of oversized, late-season injections to US South Central gas storage has all but closed the gap on the region's lingering inventory deficit recently, easing concerns at the benchmark Henry Hub over winter season supply in the premium Gulf Coast market.

Over the past eight weeks, injections to gas storage in the South Central states have totaled 229 Bcf, outpacing the prior five-year average injection rate by nearly 90 Bcf, or more than 60%.

For the reporting week ending Oct. 29, the region's inventory is now estimated at 1.172 Tcf – just 16 Bcf shy of the five-year average, data published Nov. 4 by the US Energy Information Administration shows.

The frantic pace to injections over the past two months has narrowed the region's inventory deficit from an alarming 103 Bcf in early September. As inventories have grown, the rally in Henry Hub winter gas prices has eased, pulling back from historic highs around $6.50/MMBtu in early October.

On Nov. 5, NYMEX Henry Hub futures prices for December, January and February were down about 14 cents to $5.58, $5.69 and $5.56/MMBtu, respectively, data from CME Group showed.

Winter supply

Rising South Central storage levels have accompanied recent gain in gas production across Texas and the Southeast, helping to further alleviate the market's concern over winter season supply.

In the Permian Basin, gas production has surged in November, climbing to an average 13.9 Bcf/d, just shy of its prior single-day record at 14 Bcf in June, S&P Global Platts Analytics data shows.

In the Haynesville, producers have also dialed up output recently, pushing the basin's total receipts to over 14 Bcf/d this month – a new record high for the Texas-Louisiana shale play.

At the US level, gas production is averaging nearly 93.5 Bcf/d this month – its highest since March 2020.

Demand

Seasonal weather forecasts released by the US National Weather Service and other seasonal forecasters, have also helped to level the rally in the natural gas forwards and futures markets recently

In its latest seasonal outlook, the Weather Service predicted a 40%-50% likelihood for above-normal temperatures in Texas and the Southeast from December to February. If realized, the milder temperatures could significantly lower residential-commercial heating demand across the region.

As considerations over storage, production and heating demand dampen sentiment in the winter gas markets, the outlook for Gulf Coast LNG demand this winter remains bullish.

In November, feedgas demand from US LNG export terminals has averaged nearly 10.7 Bcf/d.

With the recent initiation of feedgas deliveries to Sabine Pass Train 6, and the fast-approaching startup of deliveries to Calcasieu Pass Trains 1 and 2, US LNG exports are likely to hit record highs this winter as feedgas levels rise comfortably above 12 Bcf/d, according to recent forecasts from Platts Analytics.