Regional natural gas forward prices advanced during the March 28-April 3 trading period as the start of the spring injection season found market bulls searching for signs of green shoots after a bitter winter.
May fixed prices at Henry Hub rallied 12.1 cents to $1.845/MMBtu, setting the pace for similar front-month gains across much of the Lower 48, NGI’s Forward Look data show.
Working Down The Storage Glut
With the winter that wasn’t officially in the books, the market can shift its attention to the injection season.
Pricing dynamics across the curve reflect a market caught between an exceptionally mild winter and rosier expectations for demand heading into 2025. At $1.60-plus, the May/December spread at the start of April was as high as it’s been in at least a decade, recent Forward Look data show.
Fixed prices for December 2024 delivery at Henry Hub rallied 8.6 cents during the March 28-April 3 trading period to average $3.479.
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As of March 29, Lower 48 storage stood at 2,259 Bcf, still 633 Bcf above the five-year average, according to the U.S. Energy Information Administration (EIA). The last time storage was this high exiting the withdrawal season was in 2016, EIA data show.
Analysts at Mobius Risk Group recently pegged end-of-withdrawal storage at around 2.26 Tcf, which would leave the market “just under 1.8 Tcf of spare capacity to manage” between now and the end of October.
It’s still “far too early” to have any certainty around where inventories may sit at the end of injections, the analysts noted.
Estimates for the end-October exit level have begun to “show a wider variance, as well as a trend lower as production levels have sharply declined,” the Mobius analysts said. “Just a few short months ago, the majority of estimates would have ranged from 4-4.3 Tcf, and we now see a significant number” of estimates below 4 Tcf.
The Mobius analysts pointed to the cumulative storage build for the month of April as “the key number to focus on” as the injection season gets underway.
“How the market comes out of the gates in the injection season will be critical” given the current excess inventories, they said. If the storage surplus doesn’t trend lower at a sufficient rate, it could mean “an elongated production-curtailing price environment.”
EBW Analytics Group analyst Eli Rubin similarly pointed to bringing down the inventory surplus as the prime focus for the market in the coming months.
“The overriding market narrative this spring will be the pace of reductions” in excess storage, both in the United States and Canada, Rubin said. “Near-term progress may falter into late April and May, however – raising risks of a relapse lower for natural gas.
“Further, if prices rise, the market will adjust by reducing demand via gas-to-coal switching and quickly returning withheld supply – quelling upside potential.”
Weather-driven demand may not offer much help in keeping April inventory injections lean.
Recent long-range forecasting pointed to light demand nationally amid “exceptionally comfortable” conditions for the Lower 48 heading into the back half of April, according to NatGasWeather.
Weather patterns starting in the upcoming week and continuing through April 20 appeared likely to see storage surpluses “stall or increase slightly” absent colder trends, the firm said.
“However, as soon as more bullish weather patterns work in concert with tighter production, surpluses will decrease in time,” NatGasWeather said. “The primary question remains when. Our modeling suggests gradual surplus reductions over the next two months, then with the opportunity to accelerate at a faster pace June through September as a hotter-than-normal summer impacts much of the U.S.”
West Texas Discounts
Meanwhile, for Permian Basin hubs, forward prices at the front of the curve did not see the same uplift during the March 28-April 3 period compared to the rest of the Lower 48.
Amid a combination of weak demand and pipeline constraints, negative spot prices have become routine for locations like Waha, El Paso Permian and Transwestern recently.
Front month fixed prices at the two hubs managed to stay in positive territory but came under downward pressure in recent trading, Forward Look data show.
Waha gave up 2.0 cents week/week to end at 21.7 cents, with May basis at the hub widening to minus-$1.624.
Permian natural gas markets could see more of the same “throughout the spring,” RBN Energy LLC analyst Lindsay Schneider said in a recent blog post.
“As we head into the shoulder months and gas demand…continues to sag, the pressure on Waha prices will continue,” Schneider said. “And that means that maintenance events – even small disruptions – could send Waha prices well below zero.”
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