Henry Hub cash nears $9/MMBtu as heat wave extends into central US

Sweltering temperatures are moving east this week into the Plains, the Upper Midwest and the Lower Mississippi River Valley, promising triple-digit heat along with a spike in gas-fired cooling demand.

The National Weather Service June 13 issued a heat advisory for residents in at least 20 states stretching from New Mexico to the Carolinas. Six states are under an excessive heat warning the agency issued. The heat wave could hit hardest in and around St. Louis, where temperatures are now forecast to top 100 degrees Fahrenheit June 14-15. High temperatures in nearby cities, including Memphis, Louisville, and Indianapolis are expected to reach the upper 90s F.

Spot gas prices at key locations across the region were up about 20-30 cents June 13, amid an expected spike in gas demand over the coming days. Cash prices at the benchmark Henry Hub were trading at $8.90/MMBtu, Trunkline Zone 1A was moving around $8.40/MMBtu with Texas Gas Zone 1 close behind at $8.35/MMBtu, Intercontinental Exchange data showed.

The jump in cash prices comes as utilities across the central US brace for a spike in cooling demand this week. Over the next several days, power demand in the Southeast is forecast to rise by some 800 MMcf/d. Across the Midcontinent and the Upper Midwest, power burns are forecast to climb nearly 2.2 Bcf/d. At the US level, power burns should top 40 Bcf/d from June 15-17, their highest level since last August and the highest on record for mid-June, Platts Analytics data showed.

Outlook

Strong power burn demand and high prices in the Midwest and Gulf Coast gas markets come despite the recent suspension of feedgas deliveries to Freeport LNG, where a fire broke out June 8, prompting the shutdown of its three liquefaction trains. On June 13, flows to the terminal remained at zero.

According to Freeport LNG authorities, the plant will remain shut-in until at least the end of June, as an incident investigation, inspections, and possible repairs are carried out.

Benchmark US gas prices have already seen downward pressure as a result of the shut-in. In the three days leading up to the incident, cash Henry Hub settled at over $9/MMBtu amid strong LNG, power burn, and storage injection demand. In the days since, cash prices have remained comfortably below $9/MMBtu, with the balance-of-month contract settling most recently at $8.80/MMBtu, Platts M2MS forwards data shows.

Thanks to lost feedgas demand at Freeport, regional gas markets can count on some 2 Bcf/d in incremental supply to meet domestic-market requirements over at least the next two to three weeks. Assuming the terminal returns to service by early July, Henry Hub cash prices could quickly surge back above $9/MMBtu as the market balance tightens again amid forecasts calling for hotter-than-normal weather in July and August.

In its latest seasonal forecast, the weather service predicted a minimum 33%-40% risk for above-average temperatures in all of the Lower-48 states, with key cooling-demand regions including the Southwest, Texas, and the Northeast facing even higher probabilities in the 50%-60% range and higher.