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ANALYSIS: US gas supply crunch hits wider market amid historic freeze-off, record prices

Highlights

US output drops 20% to 72.1 Bcf/d as Permian ices over

Henry Hub cash price hits record high at over $23/MMBtu

Permian, Haynesville lead declines in US supply

Heating demand eases, LNG and pipe exports climb

Denver — The historic freeze-off in Texas and the Midcontinent continued Feb. 17, slashing gas production in the Permian Basin, the Haynesville and the Eagle Ford and pushing Henry Hub cash prices to a record high.

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Despite rising temperatures across the south-central US, total production continued falling Feb. 17, hitting an estimated 72.1 Bcf/d – marking a nearly 18 Bcf/d, or 20%, drop in output over the past week, data from S&P Global Platts Analytics showed.

Declines in the Permian Basin have led the drop in US output as temperatures in Midland, Texas tumbled to 6 degrees Fahrenheit this week. West Texas production was estimated Feb. 17 at just 6.9 Bcf/d, down about 42% over the past week to its lowest level in over three years.

A major freeze-off in the Haynesville, where production has fallen by over 4 Bcf/d since the weekend, is also largely to blame for the precipitous contraction in US supply. On Feb. 17, output from the Louisiana-Texas shale play was estimated at 8.2 Bcf/d – also its lowest in three years.

Smaller declines have been registered in the Eagle Ford and Oklahoma's SCOOP/STACK basins, where output has fallen by about 800 MMcf/d and 500 MMcf/d, respectively, Platts Analytics data showed.

Prices

As gas prices at several locations across the Midcontinent and East Texas pulled back from record highs in Feb. 17 trading, Henry Hub gas surged to a record high as supply tightness begins spreading to the broader US gas market.

At the benchmark US trading location, cash prices finished trading up $6.65 on the day to a record-high $23.61/MMBtu, preliminary settlement data from S&P Global Platts showed.

In Oklahoma, Kansas and eastern Arkansas, prices at Enable Gas East and ONEOK, Okla. also saw upward momentum, rising to fresh highs at over $434/MMBtu and $1,192/MMBtu, respectively. At other locations, including NGPL Midcontinent, Southern Star and Panhandle, Tx.-Okla, prices fell sharply into the $20s/MMBtu, down from recent record levels ranging from $225 to over $620/MMBtu.

In East Texas, trading at many hubs was suspended Feb. 17 – presumably amid low spot supply. Prices at Katy Hub in Houston eased only modestly to around $216/MMBtu, down from $359 just one day prior.

Supply & demand

With record cold temperatures across the central-south US beginning to rise, there were some indications on Feb. 17 that demand was easing. Total residential-commercial consumption was down about 7 Bcf from its recent high, estimated at 62.9 Bcf/d. US power burn demand was off about 6 Bcf from its own Feb. 15 high to 33.3 Bcf/d, Platts Analytics data showed.

The modest easing in demand allowed LNG feedgas deliveries to rise on the day, hitting 6.3 Bcf/d – up from just 2.2 Bcf/d on Feb. 16. Pipeline exports to Mexico also climbed about 1 Bcf or 25% on the day to 5 Bcf/d Feb. 17, while pipeline imports from Canada remained near a three-year high at 7.7 Bcf/d.

Over the next week, the US population-weighted temperature is forecast to rise steadily into the mid-40s Fahrenheit, up from current levels below freezing. Over the same timeframe, Platts Analytics data shows total US gas demand, including exports, falling to 109 Bcf/d, down from the current 137 Bcf/d level.