New York — Natural gas storage inventories in the US Southeast continue building this month as the potential for a truncated regional injection season looms large over a recent price rally at the Henry Hub.
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On Aug. 12, modeled Southeast storage was estimated at over 558 Bcf. Inventory levels are now just 20 Bcf, or about 3.5%, shy of the region's demonstrated maximum capacity at 578 Bcf in December 2015, data compiled by S&P Global Platts Analytics shows.
During summer seasons past, gas stored in salt domes across the US southeast has been typically withdrawn from mid-July through August to help meet peak-summer electric cooling demand. This summer, though, a brief two-week withdrawal period in mid-July was followed by a rapid build in storage volumes that has continued into August.
Over the past three weeks, the southeast region has added roughly 19 Bcf to storage. At the current pace of injection, inventories could reach their previous peak level by early September. As summer demand across the Southeast begins to wane next month, maxed out or even limited storage capacity in the region could weigh on gas prices there.
Henry Hub rally
Since the start of August, the Henry Hub cash market has surged nearly 40 cents, or about 22%, rising to the low $2 range. On Aug. 12, the benchmark spot index was down about 8 cents to $2.06/MMBtu, preliminary settlement data from S&P Global Platts showed.
Forwards gas prices have also made steep gains recently. Over the past three weeks, the Henry Hub balance-2020 forward curve has climbed nearly 50 cents to an average $2.46/MMBtu as of Aug. 11.
While September forwards are down about 7 cents from a recent high, prices for the calendar month continue to trade near $2.20, sharply higher compared to a summer average closer to $1.80/MMBtu. October forwards have shown similar resilience in recent trading around $2.30/MMBtu
As the autumn shoulder-season approaches, limited injection demand in the southeast could be at least partially offset by rising LNG demand and lower production volumes – two factors that should be supportive of regional gas prices.
According to market sources, some 26 cargoes scheduled for loading at US LNG export terminals in September have been cancelled. Although significant, that number is lower compared with June, July and August when 44 cargoes, 45 cargoes and 40 cargoes, respectively, were cancelled by offtakers.
In recent trading, the benchmark Platts JKM LNG import price has rallied into the mid-$3/MMBtu range. As global netbacks continue to improve, US cargo schedules for October – due to be reported later this month – are likely to show another steep drop in loading cancellations, helping to lift domestic feedgas demand.
Over the balance of 2020, lower production volumes could also help to buoy Henry Hub gas prices.
According to recent production forecasts from Platts Analytics, output from the nearby Haynesville – currently estimated around 11.8 Bcf/d – is expected to see limited growth in the months ahead and remain well-below record levels seen earlier this year.
In the neighboring Permian and Eagle Ford shales of Texas, production volumes are actually forecast to decline into 2021 as recent reductions in rig counts and well completions begin taking their toll.