July Henry Hub finishes near a multi-week low
Following the expiration of the June contract on Wednesday at $3.20/MMbtu, the new prompt contract, July, finished the week down 28c at $3.45/MMbtu. Winter ‘25/’26 was also impacted by the selling in the front of the curve, falling 21c to settle at $4.38/MMbtu. There were a few relevant news items this week ranging from a new FERC filing from Golden Pass LNG and more talk about cancelled Northeast pipeline projects possibly being revived.
Developers of the 2.6 Bcf/d Golden Pass LNG export plant requested authorization from FERC to hire more workers. Golden Pass said that without an increase in the size of the workforce, progress “will be delayed, extending the time needed for project completion”. While the project developers are continuing to guide for a Q4 2025 or Q1 2026 startup, this project has seen numerous delays and this request for more workers could foreshadow additional delays. The timing of the startup could have a substantial impact on gas balances in Winter ‘25/’26, as an early start could see markets tighten sooner rather than later, while a delay would be a bearish risk.
Meanwhile, the Trump administration seems to be throwing support behind some canceled Northeast pipeline projects. It was reported that Trump received a concession from NY governor Kathy Hochul. That in exchange for allowing the construction of the Empire offshore wind farm, NY would not block the construction of new gas pipelines. Pipeline operator and developer, Williams, is looking to restart work on the Northeast Supply Enhancement project which was canceled in 2024. There has also been talk of potentially restarting the process to build the canceled Constitution pipeline. The Northeast Supply Enhancement Project would increase gas deliverability in the New Jersey area by about 400 MMcf/d, while the Constitution Pipeline would connect Appalachian supply with demand centers in the Northeast. Pipeline capacity out of the Marcellus and Utica has been constrained for some time and if these projects were to be advanced, it could allow for additional production from the region or, initially, tighter basis spreads.
AEGIS continues to hold a neutral view on the balance of Summer ’25, and a bullish view on Winter ‘25/’26 and beyond. The bullish call is driven by the sizeable amount of new LNG demand on the horizon, which will result in a significant call on gas supply.
Natural Gas Factors
Price Trend. (Bearish, Priced In) While gas prices have rebounded over the last two weeks, prices remain well off the highs seen in March.
S&D Balance. (Mostly Bullish, Priced In)
Storage Level. (Mostly Bearish, Priced In) The storage level is a bearish priced-in factor due to the high levels of gas in inventories relative to the five-year average. According to the latest EIA weekly natural gas inventory report, the surplus to the five-year average stands at 21 Bcf above the five-year average and 20 Bcf above last year.
Dry Gas Production. (Bearish, Surprise) These are the most critical drivers of gas prices outside of weather. A material increase in either would pressure prices lower and loosen the supply-demand balance. These are also longer-lasting factors that can weigh on prices for years. Since the start of 2024, gas production has fallen sharply, driven by substantial curtailments and seasonal declines in Appalachia. Given low gas prices, producers may continue to curtail gas production until economics improve. A material drop in production could improve storage balances, but if prices begin to improve, there is a large amount of supply that can be brought back to market, which would be a bearish risk. With some evidence that production is now returning to the market, the dry gas curtailment bubble has been shifted to the bearish quadrant. A large amount of production was likely taken offline this year, which is now waiting to come back. Some operators may also have been drilling and completing wells during this time, which are ready to flow gas if economics have improved enough.
Associated Gas Production.(Bearish, Priced In) With oil prices remaining high and additional egress capacity coming to the Permian in the form of the Matterhorn pipeline, associated gas production may continue to grow in 2024. The Matterhorn pipe will send an additional 2.5 Bcf/d to the Gulf Coast, posing a bearish risk to Henry Hub and regional basis prices such as Houston Ship Channel.
Renewables. (Mostly Bearish, Partly Priced In) Renewables remain a perennial threat to gas prices and gas's share of the power stack. Renewable capacity additions in 2023 are expected to set a new record and are now the second-most prevalent source of electricity generation. Still, renewables have proven unreliable at times, which has exacerbated the global energy squeeze as gas usually serves as a flex-fuel when other sources underperform. We think this is priced in, but the effect at the summer peaks on gas generation has some bearish potential.
LNG Outages. (Bearish, Surprise) Feed-gas levels are at their near max capacity, and if there's any unplanned maintenance event or an outage, it might act as a surprise bearish factor for natural gas prices.
Slow Supply Response. (Bullish, Surprise) If production remains near where it is currently and does not grow into winter, this would be a bullish factor for gas prices. Typically, the Northeast region sees higher production receipts in the higher-demand months of the year. Still, due to lower activity levels over the past year, production growth may be more muted.
LNG Schedule. (Bullish, Surprise) With a significant amount of new LNG feedgas demand coming this year and the next few years, if these facilities startup sooner than anticipated it should be a bullish factor for gas prices. One example of this occuring is the recent startup of Plaquemines LNG, which saw feedgas levels reach more than 1 Bcf/d much sooner than anticipated.
Production Front-Running. (Bearish, Surprise) If producers begin to ramp up gas production in advance of the new LNG demand, this could lead to a temporary mismatch between supply and demand and weaken gas prices. The other option would involve producers waiting for a price signal from the market before increasing output.
Hedge Activity. (Bullish, Surprise) Following the sharp rally in January, many producers may have taken advantage of the higher prices and layered in more hedge volumes. This could result in less selling pressure down the curve if they are more adequelty hedged now.
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