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Analysis: Rebounding offshore gas production, weaker demand reverse Henry Hub cash rally

Highlights

Spot price falls 21 cents on Aug. 31 to $2.25/MMBtu

US offshore production up 480 MMcf/d from prior low

LNG feedgas demand at Louisiana terminals near zero

New York — Henry Hub cash prices were down sharply Aug. 31 as offshore and Gulf Coast gas production previously shuttered by Hurricane Laura continued to come back online, pressuring the regional supply-demand balance.

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In intraday trading, the benchmark price tumbled over 20 cents to $2.25/MMBtu. On Aug. 24, as Laura, a massive Category 4 storm, ravaged the Louisiana Gulf Coast, a precipitous drop in offshore gas production lifted prices to their highest in nine months at $2.52/MMBtu, S&P Global Platts data shows.

The recent downturn, which started Aug. 28, reverses a month-long trend of steady price gains that lifted the Henry Hub cash market from its sub-$2 doldrums, where it has hovered for most of 2020.

Downward pressure on prices accompanies recent gains in US offshore production.

On Aug. 31, modeled output from the Gulf of Mexico was estimated at 700 MMcf/d, up from its post-hurricane low at just 220 MMcf/d on Aug. 25. Louisiana Offshore production, currently sampled at just 165 MMcf/d, has been the hardest hit, falling from an average 1.1 Bcf/d in early August, S&P Global Platts Analytics data shows.

In July, offshore production averaged over 2.5 Bcf/d – implying an incremental 1.8 Bcf/d upside for Gulf of Mexico output in the days ahead as previously evacuated platforms are restored to production.

Demand

As offshore production continues to come back online this week, LNG feedgas consumption in the US Southeast remains severely depressed, limiting end-user demand for the returning supply.

After suffering a direct hit from Laura, Cheniere Energy's Sabine Pass terminal and Sempra Energy's Cameron LNG facility have remained temporarily shut, with feedgas demand at both locations estimated near zero on Aug. 31, Platts Analytics data shows.

After discovering no significant damage from the hurricane, Cheniere Energy has begun the process to restore operations at its Cameron Parish terminal, the company said Aug. 31.

At Sempra Energy's terminal, south of Lake Charles, an initial evaluation revealed minimal flooding and no "catastrophic wind damage", the company said in a separate statement.

As the shoulder season begins in earnest, a forecast calling for cooler temperatures in the first week of September will limit any significant upside for gas-fired power burn demand this week. In recent summer months, record power burns have offered a significant source of incremental demand for rising gas production.

US population-weighted temperatures Sept. 1-7 are expected to average 75.6 degrees Fahrenheit, down from an average 77.9 degrees in the final week of August. Over the same period, power burn demand is forecast to fall nearly 1 Bcf/d, Platts Analytics data shows.