A wave of bullish optimism, tied to the production cuts announced recently by Chesapeake Energy Corp., also lifted regional natural gas forwards higher during the Feb. 15-21 trading period, NGI’s Forward Look data show.
For numerous Lower 48 trading locations, the most pronounced week/week fixed price gains occurred further along the strip during the 2024 injection season.
Chesapeake in its 4Q2024 earnings results signaled its intent to curtail activity in both the Haynesville and Marcellus shales in 2024. The latest Forward Look price trends imply a shift in the market’s thinking around balances through the remainder of the year tied to the producer’s announcement.
Benchmark Henry Hub saw the largest fixed price gains for June through October of this year. July 2024 at the hub rallied 25.8 cents week/week to exit at $2.427/MMBtu.
Numerous other hubs followed Henry’s example by posting healthy increases across the middle months of the 2024 strip.
A few New England hubs, meanwhile, felt the pain of mild winter weather. Discounts for March delivery in the region came as forecasts made it increasingly difficult to envision impressive late-winter cold materializing to justify higher premiums.
Algonquin Citygate March basis plunged 34.3 cents for the period, ending at a 65.4-cent premium to Henry Hub.
Maxar’s Weather Desk as of Thursday was calling for exceptionally warm conditions to sprawl across key demand markets over the middle and eastern sections of the Lower 48 into early March.
The forecaster’s latest 11- to 15-day outlook, covering March 3-7, trended even warmer from the Interior West to the Midwest.
Warmer than normal temperatures expected over the eastern two-thirds of the Lower 48 for this timeframe would include “much aboves favoring the Midwest and East throughout the period,” Maxar said. “Temperatures also lean on the warmer side of normal in the South but less anomalously so in a stormy pattern.”
Market’s Production Response
How the market will resolve what could be a sizable storage overhang exiting winter remains a key question heading into the 2024 injection season. Considering the reaction to Chesapeake’s planned cuts, which saw the March Nymex contract rally 19.7 cents Wednesday, the market appeared eager to see producers pull back.
“In our view, notwithstanding 5.5 Bcf/d of price-induced coal-to-gas switching in the power sector, the natural gas market will ultimately require help from lower production to help balance oversupply,” EBW Analytics Group analyst Eli Rubin said in a recent note.
A slowdown in upstream activity as indicated by the current round of earnings results “may take months to materialize,” according to Rubin.
In the meantime, producers “may quietly narrow supply during the low-demand shoulder season,” and pipeline maintenance could also serve to curb volumes, the analyst said.
A delayed in-service date for the Mountain Valley Pipeline (MVP) is “helpful from a macro perspective but far from curative,” according to Rubin.
Appalachian Basis Weakens
Appalachian basis differentials widened somewhat during the Feb. 15-21 period, which brought news of another delay for the 2 million Dth/d MVP, now slated for completion by the end of June.
Eastern Gas South basis shed around 5-10 cents week/week across the 2024 strip and into early 2025. For April 2024, the hub finished at minus-53.2 cents, down 6.8 cents.
Still, basis differentials at points downstream in the Mid-Atlantic also came under downward pressure for the period. Transco Zone 5 April basis fell 8.5 cents to plus-13.6 cents, Forward Look data show.
As MVP inches closer to the finish line, it is perhaps worth revisiting the potential market impact as the long-delayed Appalachian takeaway pipeline finally enters service.
Analyst Sheetal Nasta in a blog post for RBN Energy LLC late last year outlined how congestion on Transco (aka the Transcontinental Gas Pipe Line) could impact the initial uplift to regional takeaway capacity afforded by MVP’s in-service.
According to Nasta, the “big questions” surrounding the pipeline’s startup are “when it will be able to flow its full 2 Bcf/d capacity and how much it will end up increasing overall Northeast takeaway capacity.”
The MVP mainline terminates at Transco’s Station 165 in Pittsylvania County, VA, the analyst noted.
“From there, MVP deliveries into Transco will depend on takeaway capacity from Station 165 in order to access premium-priced markets within Transco’s Zones 4 and 5,” Nasta said. “...Transco is the only major long-haul system supplying gas to the Atlantic corridor, and it is more or less fully contracted with firm commitments.”
