Bearish weather forecasts temper LNG export impact on US Southeast, Texas gas pricing

Temperature forecasts show unusually mild weather over the next two weeks in Texas and the US Southeast, which could keep a lid on regional spot gas prices in the near term despite soaring LNG feedgas demand.

The expected return to above-average temperatures keeps with a larger trend of warmer weather in both regions this winter. Month-to-date residential-commercial demand in the Southeast and East Texas has come in 1.2 Bcf/d, or 17%, below the same time a year ago.

As winter demand failed to appear, spot gas prices in the Southeast slid, with the Henry Hub cash price down $1.22 to average $3.81/MMBtu so far this month versus its November average, representing an about 32% decline in value.

In East Texas, the Houston Ship Channel cash price has averaged $3.65/MMBtu so far this December, down from an average of $4.78/MMBtu in November and $5.29/MMBtu in October.

Higher temperature forecasts

Both regions were forecast to see their respective average temperature climb from seasonally normal winter weather conditions Dec. 22 to substantially above-normal levels Dec. 24-Jan. 5, according to S&P Global Platts Analytics and CustomWeather.

The National Weather Service's six- to 10-day forecast showed a strong likelihood of above-average temperatures across the entire Eastern half of the country as of Dec. 22. For East Texas, Louisiana, Mississippi, and Alabama, the agency forecast an 80%-90% chance of above-average temperatures, with the rest of the Southeast and Texas having a 70%-80% chance.

The forecast for above-average temperatures in the Southeast and Texas extends into the National Weather Service's eight- to 14-day outlook as well.

Platts Analytics projects that the stretch of higher temperatures will dampen total gas demand in both regions over the next two weeks. Texas gas demand is expected to come in 1-1.5 Bcf/d below normal, with residential and commercial gas demand falling below 2 Bcf/d Dec. 23 and remaining at the lower level through Jan. 5.

Robust export demand

If forecasts bear out, the impact of unseasonably warm weather on res-comm demand will likely counterbalance the pricing impact of record-high LNG feedgas demand.

LNG feedgas demand hit a record high recently, climbing to nearly 13.1 Bcf/d Dec. 19, more than 500 MMcf/d above the previous record, set Dec. 12, according to Platts Analytics. The gains were largely driven by increases at Cameron and Sabine Pass, thanks to continued efforts to expand capacity and improve efficiency.

Since then, LNG feedgas demand has remained robust, averaging 12.9 Bcf/d Dec. 20-22. With the bulk of US liquefaction terminals in the Southeast and East Texas, the strong global demand for US LNG translated into 12.1 Bcf/d of regional gas demand Dec. 19-22.

So far, robust feedgas demand has failed to substantially boost spot gas prices, a trend that could continue as long as higher export demand is offset by lower demand in other sectors.