Natural Gas Weekly: July 13 2023
Storage: Henry Hub gas futures have been climbing for the balance of 2023 as building summer heat lifts expectations for a tighter market. However, market participants should heed that Lower 48 storage inventories remain healthy as we approach the halfway point of the traditional summer injection season.
East Daley’s latest Macro Supply and Demand Forecast projects inventories will remain ~350 Bcf above the 5-year average at the end of July, a surplus level first reached in February 2023. The relationship between the storage deficit/surplus to the 5-year average and the spot Henry Hub price is often well correlated, but the relationship between the storage deficit/surplus and the prompt month and forward strip can often go awry (see chart).
We forecast Henry Hub spot prices will average $2.26/MMBtu this summer, much lower than the seasonal out-month contracts on the Nymex forward curve. With an abundance of gas underground, we expect prompt-month prices to deteriorate as they move closer to expiry each month. We model storage inventories to remain elevated through November, though do see reason for some price strength in spot and prompt prices as the market enters the 2023-24 winter, culminating in just a 97 Bcf surplus exiting December 2023.
Infrastructure: A federal appeals court has halted construction on Mountain Valley Pipeline (MVP), rekindling permitting questions for the Northeast pipeline project.
In a unanimous decision, the US Court of Appeals for the Fourth Circuit granted a petition filed by environmental groups to halt construction. The stay prevents lead developer Equitrans Midstream (ETRN) from constructing 3.5 miles of pipeline through the Jefferson National Forest straddling Virginia and West Virginia.
MVP and its sponsors had seemingly resolved longstanding legal troubles after Congress included pro-MVP language in the recent debt ceiling bill. The language granted MVP all necessary permits, and moved jurisdiction for the project from the 4th Circuit to the US Court of Appeals for the District of Columbia.
ETRN is targeting start-up of MVP by YE23. East Daley currently models a 4Q23 in-service for the 2 Bcf/d pipeline, and we will be watching if this development causes material delay.
Rigs: Haynesville producers are slashing rig counts fast, bringing activity more in line with East Daley’s expectations at the start of 2023. Since March, East Daley has seen rig counts fall by 16, from 77 to 61 in East Texas and northern Louisiana.
The two largest public G&P systems have seen major declines, according to G&P system rig allocations in Energy Data Studio. Energy Transfer’s (ET) Enable Haynesville system has seen the largest decline, from 9 rigs in early March to just 4 in early July. WMB - Louisiana Magnolia has seen activity fall from 10 rigs to 5 in the same span.
In 2023 Dirty Little Secrets, East Daley predicted the looming natural gas supply glut in 2023, and we identified the ArkLaTex as a key swing basin to help restore market balance. Data from our Production Scenario Tools in Energy Data Studio show how quickly supply can turn when operators slow activity in the productive Haynesville play.
In our updated Macro Supply and Demand Forecast, we currently predict a 9% increase in average ArkLaTex gas production from 2022 to 2023. Yet if rigs were held flat at 61 through December 2023 in the basin PST, our model shows production would decline 6% from 2023 to 2024 (avg).
Flows: Permian Basin pipeline samples are trending at a record high in the first half of July. Daily interstate pipeline scrapes have averaged 6.1 Bcf/d so far in July, up 0.5 Bcf/d M-o-M vs a 5.6 Bcf/d average in June 2023. The previously observed high was seen in March, averaging 5.9 Bcf/d for the month.
Interstate samples are an imperfect measure of Permian gas supply, only covering ~35% of total gas production from the basin. Nevertheless, the trend suggests operators continue to bring new supply online.
Natural Gas Weekly
East Daley Analytics' Natural Gas Weekly provides a weekly update to our monthly Macro Supply and Demand Forecast. The update covers rigs, flows, production, prices and capacity constraints that materially change our view on supply and demand. This update highlights what investors and traders need to monitor in natural gas to ensure they are on the right side of the market. Subscribe to the Natural Gas Weekly.
