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Low Midcontinent gas prices fuel outbound flows in growing risk to winter storage

Highlights

NGPL Midcontinent at 24 cent discount to Henry Hub

Transmissions up 200 to 300 MMcf/d, July 1 to date

Storage level at 188 Bcf, record low for mid-September

Weak basis prices in the US Midcontinent are keeping outbound gas transmissions elevated recently. As shippers push more supply to higher-priced spot markets, regional storage has fallen to its lowest mid-September level since at least 2005, raising alarm in the market over winter-season supply reliability.

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At the NGPL Midcontinent hub, the region's benchmark location, cash basis has averaged a 24 cent discount to Henry Hub since the start of August. In the second quarter, the Midcontinent location had averaged just an 18 cent discount to Henry Hub, S&P Global Platts data shows.

Historically, the Midcontinent has offered reliable basis discount to neighboring markets, making it a key supplier to end-users in the Midwest and the Southeast. Recently, though, its widening basis discount has incentivized shippers to divert more of the region's production to neighboring markets.

From July 1 to date, outbound gas transmissions from the Midcontinent have averaged over 2.9 Bcf/d – up sharply from flows that averaged just 2.6 Bcf/d in June and about 2.7 Bcf/d in both May and April, data compiled by S&P Global Platts Analytics shows.

As more of the Midcontinent's production moves outbound – with a notable uptick in deliveries to the premium Southeast and Gulf Coast markets – the pace of this summer's storage build has lagged.

Storage, forwards prices

As of Sept. 15, gas storage levels in the US Midcontinent are estimated at just under 188 Bcf – the lowest mid-September level on record, according to Platts Analytics data dating back to 2005.

Strong gas demand in the Midcontinent this summer has actually seen the region's inventory level decline modestly from about 197 Bcf in mid-July, as shippers, utilities and traders have drawn down supply from the region's flexible salt dome caverns to meet peak summer demand.

At its current level, Midcontinent inventory would need to rise by nearly 90 Bcf over the next eight weeks to reach the average pre-winter level around 275 Bcf in the second week of November.

September to date, injections have averaged an estimated 180 MMcf/d. To reach typical pre-winter levels, injections would need to increase by nearly nine fold to about 1.55 Bcf/d, Platts Analytics data shows.

The growing likelihood that Midcontinent storage will enter the winter heating season with insufficient supply has raised alarm in the forwards markets. For some, the risk may seem especially acute following last winter's unprecedented run-up in prices across the Midcontinent and the Southeast during the historic February production freeze-off.

On Sept. 14, NGPL Midcontinent forwards for the peak-demand month of January 2022 settled at a multiyear high of $5.95/MMBtu – a nearly 50 cent premium to Henry Hub. With the exception of last February's short-lived spike in prices, Midcontinent gas has traded at consistent basis discounts to Henry Hub for almost all of at least the past two winter heating seasons, S&P Global Platts data shows.