Warmer temperatures widen Appalachia spot gas basis spreads to cash Henry Hub

A wave of above-normal temperatures in the US Northeast has reduced the region's local gas demand for heating in the near-term, increasing the discounts of Appalachia spot gas prices to cash Henry Hub.

Appalachia gas benchmark Eastern Gas, South – formerly Dominion, South—saw its basis discount to cash Henry Hub widen to 59.50 cents in April 12 trading, nearly double the 30.50 cent discount observed at the start of the month, according to preliminary settlement data from S&P Global Commodity Insights.

Fixed prices for daily Appalachia spot gas locations have risen in Appalachia this month along with the rest of US gas markets, but at a slower rate than the national benchmark Henry Hub.

Milder temperatures in near term

Data from S&P Global shows that residential-commercial gas demand in the Northeast dropped more than 2 Bcf to 6.2 Bcf on April 12, as the region's average temperature flipped to above-normal from a stretch of below-normal temperatures.

S&P Global projected that res-comm demand will sink even further to average 5.44 Bcf on April 13-14, before rebounding slightly to average 6.2 Bcf/d April 15-16.

The average temperature in the Northeast climbed seven degrees above normal to 59 degrees Fahrenheit on April 12, with CustomWeather forecasts predicting temperatures will rise even further into the low 60s F on April 13-14. Typically, the Northeast's average daily temperatures come in around the low 50s F in April.

The National Weather Service forecast that Pittsburgh would see a high of 77 F and a low of 54 F on April 13, outside of traditional heating ranges. The weather service similarly forecast Cleveland to see a high of 71 F and low 52 F on April 13.

The higher temperatures are expected to erode local heating demand, which has helped keep regional spreads narrower than year-ago levels. Eastern Gas, South spot gas has averaged a 42-cent discount so far in April, 12 cents narrower than the 57-cent averaged during the same time last year, historical data from S&P Global shows. Colder-than-normal temperatures in the first 11 days of the month boosted regional residential-commercial gas demand 18% higher than year-ago levels.

Outlook

Looking toward the latter half of April, the weather service predicted below-normal temperatures to return to the Northeast in its six- to 10-day outlook (April 18-22) and eight- to 14-day outlooks. Colder-than-normal temperatures could help rekindle local gas demand, helping to narrow Appalachia spot gas prices' basis spreads again.