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ANALYSIS: Surging industrial gas demand, exports reverse downward trend at Henry Hub

Highlights

Calendar-21 curve up 26 cents from low to $2.88/MMBtu

Southeast, Texas industrial demand set seasonal records

LNG, pipeline exports trending at record highs in April

Henry Hub forward gas prices are on the rise again in late April, thanks to a tightening supply balance along the US Gulf Coast where industrial and export activity appear to be ramping up.

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After bottoming out near $2.60 in early April, the Henry Hub balance-2021 forward curve has climbed 26 cents, or about 10%, most recently settling at an average $2.88/MMBtu, S&P Global Platts' data shows.

In the cash market, prices are also up sharply, rising more than 30 cents in the past two weeks to trade at a six-week high of $2.69 on April 20, data from Intercontinental Exchange showed.

Rising cash and forward valuations accompany recent and surprising strength in industrial gas demand from Texas and the Southeast. Gains in export demand from the Gulf Coast LNG terminals and from export pipelines to Mexico, have also added to the region's tightening gas balance this month.

Industrial demand

April to date, sample pipeline deliveries to industrial meters in the Southeast and Texas are on a tear, outperforming comparable spring-season levels in 2020 and 2019.

Modeled, regional estimates from S&P Global Platts Analytics show industrial demand in the Southeast averaging about 6.3 Bcf/d this month, making for the second-highest April demand level on record. In Texas, month-to-date estimates put industrial demand at over 5.5 Bcf/d – well above previous spring-season levels and just below this winter's record highs.

While gas demand from industrial facilities typically troughs during the summer, the recent uptick in activity suggests that this summer could be a record-breaking one.

Recent data from US petroleum refineries, also heavily concentrated along the US Gulf Coast, suggests that summer fuel demand could already be ramping up. In the week ended April 9, refinery utilization climbed to an average 85%, hitting its highest level since early March 2020, data from the US Energy Information Administration shows.

Exports

Gains in export demand along the Gulf Coast have also added to the region's tightening market balance.

Following the startup of commercial service on the third liquefaction trains at Cameron LNG and Freeport LNG, Gulf Coast feedgas demand is now trending at a record-high 10.5 Bcf/d this month.

With JKM forwards prices currently trading in the mid-$8s/MMBtu through August, strong import demand from Northeast Asia could be expected to keep US terminals fully utilized this summer.

Pipeline exports to Mexico, meanwhile, are also likely to keep the pressure on East Texas supply this summer. In April, gas transmissions from Texas to Mexico are already trending at their highest monthly average on record at over 5.5 Bcf/d – bucking the typical shoulder-season demand weakness. As temperatures south of the border continue rising and cooling demand mounts, pipeline exports from Texas could be expected to hit fresh record highs by later this summer.