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Factbox: Virus-fueled rout in oil market promises lower US gas supply, higher prices

Benchmark US natural gas prices are trading at their highest in nine weeks after oil markets were roiled this week by a supply glut driven by virus-related demand destruction and bloated storage inventories.

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On Monday, the expiring NYMEX May crude contract tumbled to a historical low settlement price at minus $37.63/b. In sharp contrast, the NYMEX Henry Hub front-month contract for May settled Wednesday at $1.94/MMBtu - its highest since late February.

In another historic market development, strengthening US gas prices have approached parity with, or even eclipsed, comparable benchmarks in the global gas market. In Europe, the Dutch TTF May contract settled Wednesday at just $1.95/MMBtu. In Northeast Asia, the Platts JKM second-half May contract finished trading at just $1.75/MMBtu - a 19-cent discount to the Henry Hub prompt.

"NBP is becoming the Waha of Europe; too much gas and not enough places to store it or sell it," said Ira Joseph, Platts Analytics head of gas and power. "JKM, TTF, and Henry Hub are essentially interchangeable at this point, which is fully compromising any arbitrage."

PRICES

**The NYMEX Henry Hub prompt-month settled at $1.94/MMBtu Wednesday, up 34 cents or about 21% over the past week amid an anticipated drop in associated gas production.

**Cash Henry Hub was trading at $1.87/MMBtu Wednesday, unchanged from a five-week high settlement price at market close Tuesday.

**Balance 2020 forwards at the Henry Hub settled Tuesday at $2.25/MMBtu, down just 4 cents from the strip's highest settlement price of the year Monday at $2.29/MMBtu.

**Summer-to-winter Henry Hub price spreads have doubled in recent weeks, rising to roughly $1/MMBtu as forwards markets anticipate a contraction in US gas supply by later this year.

**The Platts JKM spot LNG price for June deliveries to Northeast Asia fell to an all-time low of $2.00/MMBtu Wednesday, near parity with the US Henry Hub front-month contract price.

**In the very near-term, the JKM assessment for H2 May deliveries fell to $1.75/MMBtu Wednesday, a 19-cent discount to the Henry Hub May contract settlement.

**The collapsing spread, by Platts estimates, has driven US Gulf Coast LNG netbacks to levels below minus $1.00/MMBtu, a decline of roughly $1.80/MMBtu over the past 30 days.

**Export prices for LNG shipped FOB from the US Gulf Coast were assessed down 6 cents Wednesday to $1.34/MMBtu, just 4 cents above the record low in late March.

**Cash prices at the Permian Basin's Waha Hub were up sharply to around $1.21 at midweek after falling to their second-lowest settlement price on record Monday at minus $4.78/MMBtu.

**Waha winter 2020-21 forwards prices settled at an 11-month high Tuesday, as Texas regulators seek legal input from the state attorney general over a possible statewide cut to oil production.

**Dominion South cash prices edged up to over $1.60/MMBtu this week, supported by colder weather and accompanying demand strength in the US Northeast.

**Dominion South forwards prices for winter 2020-21 climbed to their highest in over two years, settling Tuesday in the mid-$2s/MMBtu, amid anticipated cuts to associated gas production.

TRADE FLOWS

LNG

**Offtakers have cancelled 10 to 20 cargoes for June loading from US LNG terminals, amid demand destruction exacerbated by the coronavirus pandemic, market sources said.

**US LNG offtakers may slow steam around Africa's Cape of Good Hope in the months ahead in a move to catch a contango in the Asian markets, should demand arise, Platts Analytics said.

**Cheaper freight costs due to an expected uptick in vessel availability could make longer voyages more economic, expanding options for floating storage.

**US LNG shipments to China resumed Monday with the arrival in Tianjin of a Freeport LNG cargo, following 13-month freeze due to tariffs.

**Cameron LNG customers have modified their production and cargo loading plans at the Louisiana facility in response to current market conditions, a spokeswoman said without providing details.

Onshore gas

**US gas production, averaging 92.3 Bcf/d in April, is at a monthly record high for 2020; output reached its highest average on record in November at over 93 Bcf/d.

**Gas-fired power burn has averaged 25.5 Bcf/d in April, with low prices and recent changes to the generation stack keeping demand about 1.4 Bcf/d, or 6.5%, higher compared to year-ago levels.

**Industrial gas demand is averaging 21.1 Bcf/d in April, down 1.6 Bcf/d, or about 7%, from year-ago levels amid weaker demand - principally from chemicals facilities and refineries.

**US LNG feedgas demand has remained near record-high levels this month, averaging just below at 8.5 Bcf/d. Over the past week, terminal deliveries have slowed to an average 8.3 Bcf/d.

**US pipeline exports to Mexico are averaging 4.7 Bcf/d in April, down about 500 MMcf/d from the year-to-date average. Following an end to recent pipeline maintenance on NET Mexico, exports have been slow to recover as virus-related demand destruction takes hold in Mexico.

**US gas in storage climbed to 2.097 Tcf in the week ending April 10, following a bearish second injection of the season that totaled 73 Bcf - nearly triple that of the five-year average.

INFRASTRUCTURE

**The US oil and gas rig count fell to 567 for the week ended April 16 - its lowest since August 2016 as shale operators continue to dial back exploration, drilling and completion budgets.

**The Permian rig count fell to 302 last week, marking the basin's fewest in over three years.

**Sempra is working on prospective commercial agreements and an export permit in an effort to advance its Energia Costa Azul project in Mexico; the company has maintained its Q2 FID target date.

**The proposed Annova LNG project in Brownsville, Texas, received an air permit from Texas regulators - among the final permits needed to begin construction in 2021. The project has faced commercial headwinds due to the virus.

**NextDecade is the only Brownsville LNG terminal developer to have announced a firm offtake deal; its lone agreement with Shell is insufficient for it to sanction the first phase of its project.

**Chinese long-term purchases of US LNG to satisfy the initial trade deal signed in January would do more to advance US projects than spot volumes that are now moving, Rice University said.

**Cameron LNG has begun introducing pipeline feed gas to the third and last liquefaction train at the facility, the operator said Wednesday.