With excess storage inventories continuing to hang over the market through the shoulder season, natural gas forwards declined notably at the front of the curve for most regions during the April 18-24 trading period, data from NGI’s Forward Look show.
May fixed prices at benchmark Henry Hub exited the period at $1.653/MMBtu, down 6.1 cents week/week. Most hubs followed Henry lower as soft shoulder season fundamentals kept a lid on prices in the nearer term.
West Texas Pressure Eases
Permian Basin hubs remained at discounted levels, but the regional price outlook strengthened during the April 18-24 period.
Still, strengthening is relative, and for Permian natural gas markets this only translated into marginally less negative pricing for May. Waha ended at negative 34.3 cents for May, up 7.4 cents week/week.
The summer strip saw more uplift, with June fixed prices at Waha jumping 25.0 cents to exit at (positive) 66.3 cents.
Spot prices improved markedly in West Texas during the April 18-24 period, with Waha managing to post a positive average for the first time since early April, Daily Gas Price Index data show.
El Paso Natural Gas Co. LLC (EPNG) recently concluded a stretch of work on its North Mainline that heavily restricted capacity on its system, according to the operator’s April maintenance schedule.
The additional downstream pipeline capacity appeared to help relieve some of the downward pressure on natural gas prices in the Permian.
The recent negative natural gas pricing in the Permian comes as “strong production growth collides with springtime pipe maintenance,” according to analysts at East Daley Analytics. “...Producers without pipe capacity from the Permian have been paying other shippers to take their gas, absorbing the cost to maintain crude oil production.”
Including EPNG’s North Mainline, as well as constraints on Gulf Coast Express, the East Daley analysts estimated that restrictions on flows out of the Permian peaked at 1.6 Bcf/d earlier this month.
MVP Narrowing The Spread
Meanwhile, in the Appalachian Basin, basis differentials held relatively steady during the April 18-24 period, Forward Look data show.
The largest U.S. natural gas producer, Pittsburgh-based EQT Corp., announced earlier in the week that it plans to extend a 1.0 Bcf/d production curtailment through May.
The news did not appear to alter the market’s thinking around Appalachian pricing dynamics. Locations like Eastern Gas South and Texas Eastern M-2, 30 Receipt have already seen narrowing differentials to Henry Hub across the 2024 strip this spring. This comes as estimates have shown production pulling back from the highs observed during the 2023/24 heating season.
Eastern Gas South exited the April 18-24 trading period at a 41.4-cent discount to Henry Hub for May. That’s a 2.5-cent decline week/week but reflects a rise of 17.5 cents versus late February trading, Forward Look data show.
Appalachian natural gas producers, which have frequently found themselves crimped by egress constraints in the shale era, got some encouraging news during the week as Mountain Valley Pipeline LLC (MVP) filed an in-service request with FERC.
Poised to finally conclude a protracted construction process, the operator will be ready to bring the 2 million Dth/d, 303-mile pipeline into service in May, according to a filing submitted to the Federal Energy Regulatory Commission.
The spread between Eastern Gas South and Transco Zone 5 across the summer 2024 strip offered some clues as to how the new capacity from MVP could influence regional prices once the pipeline enters service.
Downstream of MVP’s terminal delivery point in southwestern Virginia, Transco Zone 5 prices finished the April 18-24 period trading at $2.470 on average for June through August. That’s versus an average Eastern Gas South price of $1.581, putting the spread between the two hubs at around 88.9 cents for the upcoming summer.
This narrows the spread between the two hubs versus how the market was pricing summer 2023 contracts at the two locations around this time last year, Forward Look data show.
For the April 24, 2023, trade date, June through August of 2023 averaged $3.224 at Transco Zone 5. Eastern Gas South was trading at an average price of $1.998 for the same interval, or at a $1.226 discount to Transco Zone 5.
Futures Rout
The broader week/week discounts at the front of the curve during the April 18-24 trading period occurred as Nymex futures experienced a heavy price rout Wednesday, with the largest declines recorded for the expiring May contract.
Excess storage and weak physical market pricing has posed a challenge for natural gas markets, creating downward pressure at the front of the curve, according to EBW Analytics Group analyst Eli Rubin.
On the other hand, fading production offers reasons for bullishness heading into the summer, according to the analyst.
The extent of production declines is “outpacing industry estimates, suggesting price upside later in the injection season,” Rubin said in a recent note. “Although mild weather is obscuring immediate market impacts, strengthening core fundamentals bolster the case for summer optimism.”
