Shoulder season demand doldrums crush US spot natural gas prices

Shoulder season pricing has finally arrived for US spot natural gas hubs, with mild temperature forecasts sending cash prices across the United States plummeting in Sept. 23 trading for weekend flows.

On-day price drops were largely observed in a $1-$2/MMBtu range, preliminary settlement data from S&P Global Commodity Insights showed, with cash Henry Hub falling $1.04 to $6.71/MMBtu.

The National Weather Service described near-term weather expectations as "the first taste of autumn weather for nearly all of the eastern US," and attributed the shift to a surge of cool Canadian air in a Sept. 23 Short Range Forecast. Power sector demand for gas fell around 8.1 Bcf, or 20%, over the most recent two days to reach 33.5 Bcf/d on Sept. 23, which was nearly in line with the five-year average.

The physical gas price plunge followed a drop in US gas futures on Sept. 22-23. The NYMEX Henry Hub October contract fell 25 cents to $6.84/MMBtu, continuing a two-day slide that pushed the prompt-month below $7/MMBtu for the first time since mid-July.

The futures sell-off was triggered at least in part by the most recent US Energy Information's weekly natural gas storage report released Sept. 22, where a much larger-than-normal triple-digit build of 103 Bcf was reported for the week ended Sept. 16. The build narrowed the storage deficit to the five-year average to 10.4%, its narrowest point so far this injection season.

Northeast dynamics

The Northeast and Appalachia saw the most dramatic pricing reaction on Sept. 23, pushing regional basis spreads to cash Henry Hub to 18-month lows.

Appalachia benchmark Eastern Gas, South spot gas dropped to $3.81/MMBtu at its Sept. 23 preliminary settlement, pushing its spread to cash Henry Hub to a nearly $3 discount – the widest observed since February 2021.

Northeast gas-fired power demand fell 3 Bcf, or 42%, to around 7.2 Bcf Sept. 23 from earlier in the week, S&P Global demand models showed, adding surplus supply into a regional market that has nearly maxed out outflow capacity to other regions.

Strong local gas-fired power demand has been a key support to Appalachia basis spreads in recent months. The sharp widening of Eastern Gas, South's discount spread in Sept. 23 trading in reaction to milder temperatures shows how vulnerable regional spot gas prices have become to temperature fluctuations, a trend that will likely continue until production is dialed back or additional midstream capacity comes online.

Outlook

S&P Global forecast on Sept. 23 that US gas-fired power demand will average around 35 Bcf/d for the next seven days, substantially below levels observed earlier in September but above the 30-32 Bcf/d typically seen for late September over the last five years.

In its 30-day outlook for October, the National Weather Service forecast that most of the country would see warmer-than-normal temperatures in the period. The Midwest and Midcontinent had the strongest likelihood of above-average temperatures.