Record spot gas demand puts US South Central storage build at risk this summer

Already depleted gas storage inventories in the US South Central region face outsized market risks this summer with strong power burns, narrow summer-to-winter forward price spreads and record LNG demand promising to slow injections.

For the week ended May 20, South Central storage is now estimated at 797 Bcf – nearly 14%, or about 124 Bcf, below the prior five-year average, data from the US Energy Information Administration showed.

In its latest report published May 26, the EIA estimated a net injection of just 16 Bcf in the South Central during the prior week with salt caverns across the region showing zero net change in storage levels for the period. Sample data collected by S&P Global Commodity Insights showed numerous salt dome storage facilities posting withdrawals in late May as scorching temperatures across Texas and the Midcontinent fueled a surge in gas-fired cooling demand.

In mid-May, gas-fired power burns in Texas hit record highs for late spring, topping 5.5 Bcf/d as temperatures in parts of the Lone Star State topped 100 degrees Fahrenheit. This summer, strong power burns in Texas, the Midcontinent and the Southeast will likely continue to compete for spot gas supply in the region, posing a challenge to injection demand for South Central storage facilities.

Forecast data from S&P Global is already projecting year-on-year gains for gas burns across the central US this summer, thanks to limited capacity for gas-to-coal switching. Seasonal weather forecasts make for an even more bullish scenario. For June, July and August, the US National Weather Service projects as much as a 60% chance for above-average temperatures in Texas, Oklahoma and Kansas with the entire Southeast US facing as much as a 50% risk, a forecast published May 19 showed.

Forwards prices

Tight forward price spreads at gas hubs across the South Central US pose another risk to injection demand in the region this summer. At the benchmark Henry Hub, summer forwards prices are now trading at close to parity with the winter 2022-2023 forward curve. In recent trading, the June-July-August average has actually moved to a modest 5-6 cents premium over next winter's December, January, February forward average, Platts M2MS forwards data showed.

For forward traders, the tight spread offers little incentive to inject gas into storage this summer. Even for utilities facing minimum winter inventory requirements, summer injection demand could be delayed until the autumn months, when gas prices usually trough. With a glut of injection demand potentially postponed to late September and October, though, spot gas prices during the typically-low-demand period could remain elevated. In recent trading, Henry Hub forwards for September and October are already pricing in the low $8.80s, according to S&P Global data.

LNG demand

Record LNG demand poses yet another risk to injection demand in the South Central region this summer. Over the past year, US LNG feedgas demand has grown by some 1.9 Bcf/d thanks to the startup of Venture Global's Calcasieu Pass terminal and Cheniere Energy's Sabine Pass Train 6, along with higher utilization rates at Corpus Christi and Cameron LNG, S&P Global data showed.

In May, feedgas demand at the 10 mt/year Calcasieu Pass terminal has continued ramping up, topping 1.1 Bcf/d, with flows expected to reach full capacity around 1.3 Bcf/d by later this summer. According to S&P Global forecasts, total US LNG feedgas demand should average in the low-13 Bcf/d range during this summer's peak demand months – up from levels around 12.4 Bcf/d currently.