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Gulf Coast forward gas markets take bullish cue from South-Central storage draw

Highlights

South-Central storage falls 14 Bcf in week ended July 2

Henry Hub-, Houston Ship-2021 curve hit annual highs

LNG, pipeline export demand outweigh supply growth

A rare early July withdrawal from gas storage in the South-Central US last week has widened the region's inventory deficit to the historical average, rekindling a rally in the Gulf Coast forwards markets.

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On July 8, data reported by the US Energy Information Administration showed a 14 Bcf drawdown from inventory in the South-Central region during the prior week. The early-July withdrawal was the first of its kind since 2016 and lowered stocks to an estimated 991 Bcf, EIA data showed. As a result, the South-Central inventory deficit expanded nearly 30% on the week, leaving storage levels 84 Bcf below average.

The bullish indicator for Gulf Coast gas demand was likely behind a July 8 rebound in the forward gas markets at key downstream hubs across the region.

At the benchmark Henry Hub, balance-2021 gas prices gained about 9 cents to end trading at an average $3.71/MMBtu – the highest forward-price settlement yet recorded in 2021. At Houston Ship Channel, the balance-2021 curve gained almost 10 cents, also settling to its highest price yet this year at $3.68/MMBtu, S&P Global Platts' most recently published M2MS data shows.

In the cash market, prices the Henry Hub and Houston Ship Channel have suffered declines recently amid milder temperatures in Texas and the Southeast and an accompanying drop in gas-fired power burn demand. On July 9, however, prices at both locations rallied to settle near $3.60 and $3.70/MMBtu, respectively, according to preliminary settlement data from S&P Global Platts.

Export demand, supply

Strong gas demand in the Southeast and Texas this summer – sufficient to necessitate a drawdown from storage – comes primarily from recent gains in LNG and pipeline export demand.

From June 1 to date, LNG feedgas delivered to the four Gulf Coast LNG terminals, including Sabine Pass, Corpus Christi, Cameron and Freeport, has hovered near record levels averaging just over 9.2 Bcf/d, data from S&P Global Platts Analytics shows. Over the same five-week period last summer, Gulf Coast feedgas demand averaged just 3.2 Bcf/d amid an onslaught of cargo cancelations from exporters.

The Gulf Coast market's already tight supply balance this summer has been further exacerbated by growing pipeline exports to Mexico. Since the start of June, flows southbound from Texas to points south of the border have averaged nearly 5.9 Bcf/d – a roughly 23% increase compared to average exports of 4.8 Bcf/d over the same period last summer.

Stronger export demand has only been partially offset by this summer's increase in supply. From June 1 to date, total production across Texas and the Southeast has averaged about 35.8 Bcf/d – up about 1.15 Bcf/d in comparison with regional output last summer. A reduction in outflows from Texas, and a boost in inflows to the Southeast has also allowed more that production to remain within region. In comparison with the June 1-to-date period last summer, net flows across Texas and the Southeast are up about 1.7 Bcf/d, data compiled by Platts Analytics shows.