Compared to the last settlement, Henry Hub's March contact tumbled Tuesday, losing 27 cents to settle at $2.564/MMBtu. Cash prices also took a hit, shedding 22 cents per MMBtu to come in at $2.52/MMBtu for Wednesday's gas day. Coming out of the weekend and in to Tuesday's trading, the market seemed to react to warmer weather forecasts and diminishing hopes of any remaining winter demand bump. Demand in the Southeast is projected to remain more or less flat for the week ahead, averaging 17.5 Bcf/d compared to the prior week's average of 18 Bcf/d. The recent price slide in both the prompt month and cash market comes as production in the Southeast takes a stab at recovery with sample production touching 12.6 Bcf/d on Sunday and Wednesday, with Wednesday coming in 136 MMcf/d above the 30-day average. Strengthening production in a low demand environment could spell trouble for Henry Hub for the balance of the winter and into summer with sustained low prices a possibility.
Henry Hub nearing the $2.50 mark on Wednesday is giving some support to power burn which is estimated at 21.2 Bcf, a 0.8 Bcf/d gain from the day prior. Unseasonably warm weather in February has limited overall demand, increasing the odds of higher end of season storage levels and weighed on forward prices. Prices for the 2/21 forward curve for March through October represent a $0.45, or 14%, average decline from where the curve was at the start of the month, with every contract now below $3/MMBtu. The lower prices on the recent curve would afford an estimated 0.7 Bcf/d of additional burn from March to October compared with what would be expected using prices from the 2/1 curve as a result of gas’ competitiveness leading to lower coal capacity factors. Under the two scenarios, more than a third of the gain would come from higher burn in the Southeast, which could see an additional 254 MMcf/d of demand from the lower prices. With the recent March to October strip still representing a 16% increase over last year’s levels, forward implied burn for both the US and Southeast would be expected to come in lower relative to 2016.
Northeast US pricing continued to slide on the market re-open Tuesday, largely on firming-up warm weather forecasts through the balance of February and into early March. While March basis contracts for Dominion South gas closed out roughly flat day-on-day on Tuesday, the fixed-price equivalent dropped by roughly 26 cents in step with declines at Henry Hub. Algonquin Citygates gas fell even further due to its sensitivity to regional demand, shedding 13.2 cents from the basis contracts resulting in a fixed-price equivalent of a 40-cent decline to $3.29/MMBtu for March delivery. For some context, Algonquin basis peaked in late December, just two months ago, at a nearly $7 fixed-price for March, indicating that it has dropped by more than half its value in the interim. Summer contracts were less affected, but by no means spared, as Dominion South fixed-price gas dropped by about 19 cents for the summer strip to current levels of about $2.09/MMBtu, and Algonquin likewise dropped by 23 cents for the upcoming summer. Winter has no doubt lost steam, with above-average temperature forecasts signaling fewer opportunities for bullish prospects in the six-or-so weeks remaining this winter season.