Natural gas finishes the week lower despite bullish storage number
The prompt Henry Hub contract settled 12c lower at $3.43/MMbtu, with this being the second consecutive weekly loss. The Winter ‘25/’26 strip lost 18c to finish the week at $4.33/MMbtu. Prices were more stable further out in the curve, while the front continued to be pressured lower by ample supply. Although this week’s storage report was the first one since April to be smaller than the five-year average, it still fell on the more bearish end of expectations.
This week, the EIA reported an injection of 55 Bcf into underground storage. This was the first injection since April to be smaller than normal, with the five-year average injection for this week of the year being 62 Bcf. So far this summer, inventories have climbed rapidly, driven by weak weather and strong production. For a more detailed look at the pace of the injection season so far, click here.
While this week’s report saw the storage surplus contract slightly to +173 Bcf to the five-year average, our November end-of-season estimate remains near the top of the five-year range at 4.0 Tcf. If this forecast pans out and inventories are looking to start winter at an elevated level, it could push prices lower for this fall and winter. November 2025 Henry Hub is trading around $3.90/MMbtu, which could be too rich if storage is as full as some anticipate.
Even if fundamentals may look looser for the start of winter, dynamics are expected to shift rapidly as new LNG demand quickly tightens the supply-demand balance. Signs of this coming jump in demand can be seen already, with Corpus Christi LNG hitting a new record this week as the Stage 3 expansion ramps up, and Golden Pass indicating they will receive an LNG cargo soon to begin the cooldown of the facility.
AEGIS holds a neutral view on near-term prices, and a bullish view on Winter ‘25/’26 and beyond. Call-put skew remains elevated across these tenors, potentially making costless collars more attractive to producers.
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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