18 Feb 2021 | 22:59 UTC — Houston

US gas production stabilizes, easing domestic supply crunch and lower prices

Highlights

Midcon, East Texas gas prices fall from record highs

Output stabilizes at 75.4 Bcf/d as temperatures rise

LNG, pipeline exports rebound; imports stay elevated

Houston — Spot natural gas prices across much of the Central and Western US fell sharply Feb. 18, as domestic production stabilized and heating demand continued to ease amid warming temperatures.

In the Midcontinent, cash markets dipped into the $6s to low-$7s/MMBtu at Panhandle, Southern Star and the region's benchmark location, NGPL Midcontinent. At Enable Gas and ONEOK, where cash markets have been the most volatile this week, prices were trading around $56 and $14/MMBtu, respectively, data from the Intercontinental Exchange showed.

Following a Feb. 17 order by Texas Governor Greg Abbott to halt natural gas exports from the state, cash markets in East Texas remained volatile, with Houston Ship Channel and Katy Hub trading around $44 and $63/MMBtu, respectively – down from recent levels ranging from $200 to over $350/MMBtu.

At the US benchmark Henry Hub, prices were down about $16 by midsession, to the mid-$7s/MMBtu.

Supply, demand

The steep decline in gas prices Feb. 18 came as production appeared to stabilize around 75.4 Bcf/d – down about 15 Bcf over the past 10 days following a historic freeze-off in the south-central US.

In the Permian and the Haynesville – both among the hardest hit basins – production receipts were down about 3.8 Bcf/d and 4.4 Bcf/d, respectively, on Feb. 18 compared with pre-freeze, prior 30-day averages, data compiled by S&P Global Platts Analytics showed.

A steady decline in gas demand over the past several days has also helped to ease prices. On Feb. 18, total US demand, including LNG and pipeline exports, was estimated at 133.2 Bcf/d – down from levels closer to 152 Bcf/d earlier this week. By early next week, the US population-weighted temperature is forecast to continue rising to the low-40s Fahrenheit from 33 F currently, further easing demand.

As the US market balance continues to stabilize, gas exports also rebounded sharply on Feb. 18. At LNG terminals, feedgas levels were estimated at 5.6 Bcf/d, up about 3.4 Bcf from recent lows. Pipeline exports to Mexico edged up to 4.9 Bcf/d, rising roughly 1 Bcf over the same period.

Texas & the West

In the hard-hit Lone Star State, it remained unclear whether a recent order by Texas Governor Greg Abbott to halt natural gas exports through Feb. 21 was having its intended effect. While LNG feedgas deliveries were all but completely halted Feb. 18, exports to Mexico climbed about 1 Bcf to 4.9 Bcf/d. Outflows to neighboring regions also climbed, gaining about 50 MMcf on the day to just over 200 MMcf/d, Platts Analytics data showed.

In the Permian Basin of West Texas, and in the neighboring Rockies production area, spot gas prices plummeted back into the single digits in Feb. 18 trading. Forecast higher temperatures in both regions should lower gas demand while providing conditions that could lead to stronger production.

A forecast thaw in the Permian saw prices at Waha drop nearly $56 to just $8.41/MMBtu. At CIG Rockies, warming temperatures saw prices fall over $14 to $5.735/MMBtu.

Upper Midwest

Upper Midwest cash markets also fell sharply in Feb. 18 trading. At Northern, Demarc prices fell to $5.93/MMBtu, down from over $230 earlier this week. Natural Gas Pipeline-Nipsco dropped to $6.33/MMBtu after seeing similar record highs at over $200 this week. MichCon city-gates, meanwhile, has stayed relatively stable, reaching its highest point of $7.83/MMBtu this week before settling to $5.50/MMBtu Feb. 18.

Demand in the Midcon Market dropped to 22.8 Bcf/d, still 9.7 Bcf above the five-year average but 6.6 Bcf below its highest point from the past week, Platts Analytics data showed. As temperatures in Chicago and other key demand centers continue to warm through the weekend, Midwest demand should fall further to around 16.1 Bcf/d by early next week.

Northeast

In the Northeast, spot gas prices have remained largely insulated from this week's storm impacts as locations across the Midwest and Southeast experienced extreme and historic market volatility.

At Algonquin city-gates, prices fell $3.31 to $9/MMBtu in Feb. 18 trading, while Iroquois Zone 2 slid $2.08 to $5.56/MMBtu.

Strong production and inventories have been heavily utilized throughout the Northeast region this week, with storage inventories shrinking about 166 Bcf already this month and production averaging 32.8 Bcf/d, February to date. Compared to the winter 2019-2020 season, the Northeast has already withdrawn roughly 70 Bcf more from storage than at this time last year.

According to an updated forecast from Plats Analytics, total Northeast demand should drop slightly on Feb. 19 but later increase to roughly 35 Bcf/d throughout the upcoming weekend.


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