NYMEX Henry Hub prompt-month hits 30-month high as US supply balance tightens

The NYMEX Henry Hub prompt-month gas futures contract surged to a 30-month high in early trading June 25 as concerns over US supply tightness continue to build fueled by a series of weak storage injections, stronger-than-anticipated summer power burn and persistently high export demand.

In morning trading June 25, the July contract traded up to $3.508 before settling modestly lower to $3.496/MMBtu. The NYMEX Henry Hub July contract's buoyancy has been mirrored in the balance-of-summer and winter strips. The July-October 2021 contracts averaged $3.506/MMBtu and the winter strip, November 2020-April 2022, averaged $3.486/MMBtu on June 25, according to preliminary settlement data.

"Really the initial driver for this increase came from the storage report yesterday," said Daniel Myers, market analyst with Gelber & Associates. "Last week's injection was another reminder of how tight things have been," Myers said by telephone June 25.

In the week ending June 17, a total of just 55 Bcf was injected into US gas storage, undershooting the five-year average build by 28 Bcf or about 34%, according to data reported by the US Energy Information Administration. It was the second consecutive weekly injection reported by the EIA that registered below average, following a mere 16 Bcf injection in the week prior.

Beginning in mid-April, the US storage deficit began widening steadily. In just the past several weeks, unseasonably strong power burn demand has tipped the scale, nearly tripling the size of the storage deficit and leaving stocks at 2.482 Tcf – an estimated 154 Bcf below the five-year average.

Power burn

Month to date, US gas-fired power burn has averaged 35.5 Bcf/d setting a record-high average for the first 25 days of June, data compiled by S&P Global Platts Analytics shows.

"The hot June weather across the country has continued to pressure prices," Myers said. "We've been expecting the higher prices to drive more power generators to switch to coal over gas [but] I think fuel switching has been limited so far just based on the peak demand in some places."

Despite recent price strength, power burns have outperformed this summer. Earlier this month, as population-weighted temperatures climbed into the 80s F along much of the Eastern Seaboard, the Southeast and Texas, US power burn demand topped 39.4 Bcf – an early-June record high that was fueled by warm, but not atypical temperatures for late spring.

Exports

Robust US gas exports have also provided support to US gas futures prices.

Pipeline exports to Mexico have repeatedly smashed prior record highs this month, according to Platts Analytics data dating back to 2005. US-to-Mexico flows surpassed 7 Bcf/d for the first time on June 10 and reached an all-time high of 7.41 Bcf on June 18. The export buoyancy has been supported by a heady mixture of summer cooling demand and the gradual reopening of Mexico's economy.

US LNG feedgas demand has also been brisk, rising to surpass 11 Bcf/d in recent days supported by hearty demand in South America, Asia, and Europe. Total feedgas demand has averaged 9.88 Bcf/d so far in June, more than double last June's 4.13 Bcf/d average.

The outlook for US LNG exports is sunny – Platts Analytics expects positive netbacks for US Gulf Coast LNG exports through June 2022, according to the most recent Global LNG Weekly Netback Forecast.

An unusually cold winter in Asia eroded regional storage levels there, boosting import demand recently as utilities scramble to rebuild stocks before summer cooling demand sets in. Platts pricing data shows the DES Japan/Korea Marker (JKM) for the peak-cooling month of August has steadily climbed since March, reaching a fresh high of $12.93/MMBtu on June 25.

Gas futures in Europe have been on a similar race to the top with NBP winter prices reaching their highest level since 2008 on June 23 and the Dutch TTF equivalent on June 21. Concern over Europe's own low inventories have been compounded recently by weakness in pipeline imports from both Russia and Norway.