US natural gas prices are falling as weakening global economic sentiment and the threat of a recession and demand slowdown start to impact the US market, said Rystad Energy. Hurricane Ian also poses a threat to domestic gas consumption as it prepares to hit Florida’s gulf coast, the impact on LNG export infrastructure is expected to be relatively muted due to the trajectory.
“Warm weather continues to subdue demand, but winter weather is on the horizon. Domestic supply continues to remain placid, maintaining its recent trajectory, cresting at 100 bcfd on September 9th before retreating to 97 bcfd recently. Sustainable production growth is required in the coming weeks if the supply and demand balance is going to find some degree of comfort,” said Rystad analyst, Ade Allen.
“The Appalachian region usually serves as the swing producer this time of year. Production is expected to grow by 1.5 bcfd from current levels to satisfy regional consumption needs during the winter. Growth in the Permian region will be driven by increased spending in fourth-quarter as operators look to exhaust their budgets.
“The Waha basis widened this month, re-introducing fears on regional takeaway capacity constraints. However, recent plans for midstream debottlenecking and the planned Matterhorn Express pipeline will provide sufficient short-term egress for the region,” said Ade.
“West Texas to Mexico also provides optionality for additional egress, current flows are approximately 60% of nameplate capacity (2.5 bcfd) and additional molecules will help contract the widening gas deficit in Mexico.”
“Earlier this year, the Haynesville region was running about 70 rigs, well above maintenance, supporting our medium-term growth expectations. However, a few factors could serve as downside risks, such as regional-focused operator consolidation, takeaway capacity constraints and limited export capacity growth in the short term,” said Ade.
The short-term demand picture is slightly more uncertain when compared to the domestic dry gas supply. Current weather scenarios indicate below-average temperatures in the short-term forecast, likely to trigger an increase in heating demand.
“This could mean higher storage injections this month when compared to stock levels in September 2021. Last week’s reported injection of 103 bcf for the week ending September 16 was the highest injection since last winter and well above market consensus. Market participants began recalibrating their expectations for September balances and we could see more triple-digit injections in the coming weeks,” said Ade.
US LNG exports will see some ebb to total volumes as the market entering maintenance season. Cove Point recently announced its upcoming maintenance schedule, with its current proposal estimating 17 days of maintenance, shorter than last year. Most US plants have been running at or near maximum utilization in 2022 in order to capitalize on favorable global pricing economics. Extended maintenance periods could translate to higher injections in September and October, putting additional downward pressure on prices.
Based on the current weather forecast and the probability of higher-than-expected injections for September, prompt prices will continue to trend lower as upside catalysts remain thin. The dynamics could change with the slightest suggestion of a colder-than-normal winter.
“Storage remains 10% below the 5-year average, which skews the risk weighting when considering the absolute levels and the market will begin to factor winter severity into forward prices,” said Ade.
