Regional flows shift on competing demand
Rockies, Permian supply gets squeezed
New York — Spot gas prices across the US West, the Rockies and Texas surged to fresh multiyear highs in Feb. 10 trading as bitterly cold weather and strong heating demand fuel a regional competition for gas supply.
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Register NowAn ongoing major cold weather event across the Midwest and Northeast has spiked gas demand in those regions, pulling additional supplies to the Midwest and sharply reducing Northeast outflows to the Southeast since its onset on Feb. 6.
The heightened demand and higher spot gas prices in the central part of the country have shifted flows out of the Rockies, with Rockies-to-Midwest and Rockies-to-Midcontinent flows rising at the expense of flows to the Northwest and Southwest.
The spike in Midwest and Midcontinent heating demand has also pulled more gas into those regions from the Northeast, leaving less to flow from the Northeast to the Southeast. S&P Global Platts Analytics data shows that net Northeast-to-Midwest flows have increased about 400 MMcf/d over the last week to an average 6.3 Bcf/d, while net outflows to the Southeast have fallen to an average 3.9 Bcf/d over the past week from an average 5.4 Bcf/d in the seven-days prior.
Permian Basin
With the Southeast and Southwest being two main demand centers for Permian gas outflows, the drop in Northeast-to-Southeast and Rockies-to-Southwest flows has helped boost Permian spot gas prices. Waha Hub surged $1.19 to trade at $4.45/MMBtu, which will be the location's highest price since January 16, 2018 if it holds to settlement.
The potential for increased local demand and lower production has also helped raise Permian spot gas prices. West Texas is expected to see temperatures fall below freezing in the near term, with the National Weather Service forecasting a low of 28 degrees Fahrenheit at Midland, Texas on Feb. 11. Further lows are expected through the weekend, with temperatures expected to fall as low as 15 F on Feb. 13, which could prompt wellhead freeze-offs.
Permian production, meanwhile, already remains well below year-ago levels averaging about 12 Bcf/d month to date, compared with an average 12.6 Bcf/d over the same period in 2020.
East Texas
As East Texas competes for Permian Basin gas with the Southwest, the cash price for Houston Ship Channel increased $1.30/MMBtu on the day to $4.55/MMBtu – the highest level the location has seen since December 2018. Similarly, the cash price for Katy Hub increased $1.15/MMBtu on the day to $4.38/MMBtu.
Texas demand sat at 13.73 Bcf on Feb. 10, according to Platts Analytics. Demand is expected to jump to 18.78 Bcf by Feb 14. Population-weighted temperatures were 7 degrees Fahrenheit below normal on Feb. 10 and are currently expected to plummet to 30 degrees F below normal by Feb. 14.
The Rockies
A similar story has played out in the Rockies, with higher spot gas prices resulting from strong local demand competing with outflow demand. Spot gas prices in the Rockies hurtled over $1 higher on the day in a fight to keep enough supply in-region to cope with elevated local demand. Cheyenne Hub gained $2.16 on the day to trade at $5.63/MMBtu, which will be the location's highest price since March 2019 if it holds to settlement. Cash Cheyenne Hub has settled above $5/MMBtu on only three prior occasions in the last five years.
Rockies gas demand has increased sharply recently, averaging 5.5 Bcf/d for Feb. 8-10, which is 1.6 Bcf/d higher than in the prior seven days (Feb. 1-7).
The pricing impact of the demand for Rockies gas supply has been exacerbated by the region having less gas production to draw on. Year-to-date, gas production in the Rockies has averaged 7.9 Bcf/d – about 1.3 Bcf/d, or 14%, lower than the same time last year.
Outlook
Temperatures across the country are forecast to decline further over the next several days. Platts Analytics and CustomWeather have forecast the average temperature in the Midcontinent to fall to 0 degrees F on Feb. 13, which is 34 degrees below normal for the region. With the average temperature in the Rockies and Texas also forecast to fall far below normal levels, the pressure on Rockies and Permian supply could lead to fresh multiyear highs for regional spot gas prices.
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February 11, 2021 at 06:02AM
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Competition for gas supply sends Permian, Rockies spot prices to multiyear highs - S&P Global
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