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Henry Hub gas futures prices flirt with $6 level amid sustained supply crunch

Highlights

November contract tops $6, settling to $5.77/MMBtu

Weather fuels bullish 14-day outlook for power burn

Offshore production still recovering from Hurricane Ida

NYMEX Henry Hub prompt-month futures surged briefly to over $6 in Oct. 4 trading as US gas production stumbles below 90 Bcf/d with storage inventories still trailing typical pre-winter levels.

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The November contract ended trading at $5.77/MMBtu, up about 15 cents on the day, and just 10 cents shy of a recent seven-year high settlement for the prompt-month contract.

Gains on the December, January and February contracts were of only slightly smaller magnitude with the peak-winter months all settling in the $5.80 to $5.90 range, data from S&P Global Platts showed.

The precipitous surge in NYMEX futures accompanied gains in the cash market where prices were up about 30 cents Oct. 4 to trade in the upper $5.80s/MMBtu, preliminary settlement data showed.

Over the near term, weather forecasts calling for unusually mild temperatures through mid-October support a bullish outlook for power demand across the eastern half of the continental US. In Texas and the Southeast, power burns over the next 14 days are forecast to remain roughly flat to second-half September level, totaling around 14.8 Bcf/d across the two regions, S&P Global Platts Analytics data shows.

Longer term, lingering supply concerns are making for an even more bullish outlook.

Production

On Oct. 4, US gas production was estimated at just 88.8 Bcf/d as the offshore Gulf of Mexico fields continue to recover from the effects of Hurricane Ida. Onshore, recent declines in output from Appalachia and the Permian Basin have magnified the continued weakness in offshore receipts.

In the month prior to Hurricane Ida, domestic production had averaged 90.9 Bcf/d, Platts Analytics data shows. The storm-fueled drop from the offshore exacerbates an already protracted decline in US production that began in the immediate fallout from the global pandemic. Prior to the drop, output had reached a record-high monthly average at nearly 95.4 Bcf/d in November 2019.

Storage

As US production stumbles, the ongoing decline has also kept storage levels persistently low this season.

In its latest report, the US Energy Information Administration estimated total inventories at 3.17 Tcf as of the week ended Sept. 24 – 575 Bcf, or more than 15%, below their corresponding year-ago level. Compared with the five-year average, storage is down 213 Bcf, or about 6%, EIA data shows.

According to Platts Analytics, US inventories are likely to finish the injection season with less than 3.5 Tcf in the ground – more than 200 Bcf below average. An average heating season would likely slash inventories to the low 1 Tcf range by March. An exceptionally cold winter with strong heating demand could take storage to dangerously low levels at less than 1 Tcf.