New York — The Henry Hub 2021 forward curve is trading at its highest in more than four years as supply-demand fundamentals in the US natural gas market continue to tighten.
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On Oct. 22, the calendar-year curve settled at an average $3.09/MMBtu, down just 4 cents from the prior day's record settlement, S&P Global Platts' most recently published M2MS data shows.
While the 2021 curve has gotten a lift from winter-season prices trading in the $3.30s to $3.40s/MMBtu, the forward market has also become increasingly bullish on the shoulder-season and summer contracts. For calendar months from April to September, prices are currently trading in the $2.90s with the October, November and December contracts now at over $3/MMBtu.
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The bullish outlook for the 2021 gas market comes as many traders continue to anticipate headwinds for US production, which remains sharply below its pre-pandemic highs. In October, production has averaged just 86.7 Bcf/d – off nearly 9% from its November 2019 record-high average at 95 Bcf/d, data compiled by S&P Global Platts Analytics shows.
Earlier this year, commodity-market volatility prompted many producers to cut drilling budgets and rig counts and even curtail production temporarily. While a handful of producers are bringing rigs back to the Permian and other select basins, the recent uptick in activity doesn't appear likely to quickly restore output to its previous growth trajectory.
On Oct. 21, the weekly US rig count was estimated at 347, up from a 15-year low at 279 in July. Earlier this year, the rig count had totaled over 840, according to recent data published by Enverus DrillingInfo.
For the upcoming heating season, Platts Analytics has forecast US production to see minimal growth, rising to about 87.5 Bcf/d from November to March – more than 6 Bcf/d below its winter 2019-20 level.
While pre-winter gas storage inventories could reach a record high this season, the promise of additional stored gas hasn't cooled the market much. For the week ending Oct. 16, the US Energy Information Administration estimated US inventories at 3.926 Tcf – already its highest in four years with at least three reporting weeks left in the current injection season.
One key reason for the market's continued bullishness could be potential concerns over deliverability.
On the coldest days in winter seasons past, capacity limits on withdrawals have restricted the availability of gas when and where it is needed most, exacerbating price blow-outs – even at well-connected hubs. In January 2018, extreme temperatures pushed US natural gas infrastructure to its limits, sending Henry Hub gas to over $7, with prices in the Northeast climbing into the $40s to $50s/MMBtu.
Yet another reason for the forward market's bullishness is anticipated demand growth.
In late October, LNG feedgas demand climbed to over 8 Bcf/d, its highest since April, as the number of export-cargo cancellations continues to decline. At least 175 cargoes were canceled from US ports from April to November with the number of cancellations reaching its highest this summer.
Cheniere Energy, the largest US exporter, has yet to receive a single cargo cancellation for the month of December, according to recent reporting by S&P Global Platts.
During the upcoming winter season, Platts Analytics is forecasting feedgas demand to reach its highest on record at nearly 11 Bcf/d as newly installed liquefaction capacity along the US Gulf Coast is pushed toward full utilization. Last winter, LNG demand reached a record monthly-average high around 8.75 Bcf/d.
At least during the upcoming winter months of 2021, anticipated year-on-year gains in the residential-commercial heating sector appear likely to be offset by declines in power generation demand.
While a return to 10-year average temperatures in January, February and March would boost heating demand by an estimated 4.3 Bcf/d, higher gas prices this winter compared to last are expected to cut generator demand by roughly the same amount, according to Platts Analytics.