US South Central gas storage deficit widens amid elevated demand, prices

Hot weather and high gas prices in Texas and the Southeast are posing a renewed threat to gas storage in the US South Central region as strong spot gas demand fuels a steep drawdown from inventory.

In July, population-weighted temperatures in Texas averaged a brow-raising 90s degrees Fahrenheit, or nearly 6 degrees above last summer's average for the month, data from Platts Analytics shows. In cities from Wichita, Kansas to Birmingham, Alabama, high temperatures last month topped 100 degrees on some days, with many locations experiencing unrelenting stretches of triple-digit heat.

Cooling demand across Texas and the Southeast has been on a tear as a result. Total demand for gas-fired power across the region averaged a record-high 21.1 Bcf/d last month, outpacing the prior three-year average by 2.2 Bcf/d, or nearly 12%. At locations east of Henry Hub, spot prices have rocketed to never-before-seen premiums, thanks mostly to maintenance and limited flow capacity into the region.

In July, prices at Transco Zone 3 and Transco Zone 4 averaged about $10/MMBtu, or more than a $3.50 premium to the benchmark. At Florida Gas Zone 3, cash prices averaged closer to $11 last month, with the location trending at a more than $4 basis premium to Henry Hub, Platts data shows.

Storage

Constraints on gas supply flowing into Louisiana, Mississippi and Alabama have prompted an asymmetric drawdown on South Central storage this summer, with salt domes along the eastern Gulf Coast seeing the largest cumulative pull, according to Platts Analytics.

In a recent analysis, salt inventories in the three states dipped to just 113 Bcf as of mid-July – dropping below the region's total average withdrawal volume of 114 Bcf over the past five winter seasons. The critical salt dome storage level in the eastern Gulf Coast now implies the need for a heftier restocking to inventory in September and October – prior to the upcoming heating season.

Ove the remainder of summer, though, gas storage in Louisiana, Mississippi and Alabama could be further depleted. In early June, maintenance through Transco Station 60 in eastern Louisiana began limiting eastbound flows from the state by some 500 MMcf/d, with the work not scheduled to conclude until mid-September. Meanwhile, southbound flows from Appalachia this summer have been nearly maxed out on Transcontinental Gas Pipe Line, further limiting supply delivered into the three-state region.

For the week ended July 22, total gas storage in the South Central region is estimated at 862 Bcf – more than 150 Bcf below the prior five-year average and the steepest deficit since mid-March, EIA data shows.