Strong natural gas demand across the central US this month is pulling more supply northbound from the Permian Basin as Midcontinent hub prices hit steep premiums to Waha. With colder weather forecast across the Upper Midwest over the coming week, a likely continuation of the trend could cut Permian deliveries to the Gulf Coast and other destination markets.
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Since the start of January, gas demand across the Upper Midwest has seen its strongest start to a new year since 2018. Frigid temperatures in the region have fueled an uptick in deliveries from the Midcontinent producing region, encompassing Oklahoma, Kansas and Missouri, where gas prices have strengthened as a result.
At hubs across the Midcontinent, spot gas prices traded into the $4.30s/MMBtu on Jan. 13, hitting their highest since late November, preliminary settlement data from S&P Global Platts showed.
Rising gas prices in the Midcontinent this month have lifted locations across the region to steep premiums over Waha, incentivizing an uptick in northbound flows from the Permian Basin. Month-to-date, Permian deliveries into the Midcontinent have averaged over 720 MMcf/d, or about 70 MMcf/d stronger than in December, data compiled by S&P Global Platts Analytics shows.
Weather, demand outlook
Over at least the next week, colder weather across the Upper Midwest promises to keep Midcontinent gas demand and prices strong, potentially diverting more Permian Basin supply northbound – away from the basin's other destination markets like the Gulf Coast.
Current forecast data shows population-weighted temperatures across the Midwest averaging a frigid 21 degrees Fahrenheit over the next week, roughly in line with the month-to-date average at 19.7 degrees.
Over coming weekend, Midwest gas demand is forecast to reach its highest yet this season at over 29.3 Bcf/d as temperatures in the region dip into the upper teens. With gas prices in both the Midwest and the Midcontinent likely to surge, Permian shippers could divert additional supply away from the Gulf or West Coast markets to meet stronger demand in the central US.
Already this month, stronger gas demand in both the Midcontinent and the Midwest, and in the local area around the Permian Basin, appears to have weakened eastbound gas transmissions.
According to modeled data from Platts Analytics, eastbound transmissions from the Permian are down about 600 MMcf/d so this month, compared to last. Permian flows westbound, and southbound to Mexico have thus far seen little change compared to December.
With Permian eastbound transmissions potentially facing downward pressure in the days ahead, Gulf Coast hubs like Houston Ship Channel and Katy could be forced to compete for Permian supply.
Over the past three weeks, NGPL Midcontinent has priced at an average 24 cents premium to Waha, compared with an average 22 cents premium at Houston Ship Channel. Amid strengthening demand in the Midwest and Midcontinent gas markets, both hub's premium to Waha has moved more in tandem recently as the two destination markets are increasingly forced to compete for Permian supply.