New York—While attention focuses on record-shattering regional cash natural gas prices stemming from the ongoing winter storm, summer strip prices look to benefit well after the ice thaws due to storage fields being depleted to meet staggering demand levels.
The record cold seen the last seven days in the US Midwest has wreaked havoc not only on demand but supply as well, likely strengthening some hubs for months to come, according to S&P Global Platts Analytics.For example, NGPL Midcontinent hub traded between $680/MMBtu and $95/MMBtu on Feb. 16. It settled at $379.60/MMBtu, pushing even higher than the $206.11/MMBtu seen last weekend even as temperatures began to rise and demand marginally weakened.
Temperatures in the SCOOP/STACK play in Oklahoma fell to minus 1.4 degrees Fahrenheit on Feb. 15. This pushed regional demand as high as 11.9 Bcf/d as seen in Figure 2. While residential and commercial demand rose with declining temperatures, gas-fired power generation was also aided by wind turbine freeze-offs. Wind chills pushed wind turbines towards the roughly minus 20-degree freeze-off temperatures, increasing the need for gas generation.
The extreme cold temperatures also forced production freeze-offs in the SCOOP/STACK. Platts Analytics modeled sample data for the SCOOP/STACK fell to 4.7 Bcf/d on Feb. 16. SCOOP/STACK production averaged 6.1 Bcf/d in January.
Higher demand and weaker production forced the region to reduce flows out of the region and turn towards the Rockies for additional supply. Outflows from Oklahoma to the Upper Midwest declined to as low as 1.3 Bcf/d, while January had averaged 2.4 Bcf/d.
Towards the Southeast, flows dipped to nearly zero after averaging 745 MMcf/d in January thanks to flows along Centerpoint Pipeline falling as much as 669 MMcf/d from January. Also, Rockies inflows also jumped from 617 MMcf/d in January to as high as 1.6 Bcf/d during the current cold snap.
This increase in net inflows has not matched the demand gains and production losses prompting the region, like most of the US, turned to storage. Withdrawals in the Central US reached as high as 6.8 Bcf/d on Feb. 14. This pushed inventories below both last year and the five-year average as seen in after trending higher than both for most of winter.
This dramatically reduced storage supply and sustained freeze-offs are likely to ensure prices are stronger even as demand declines. While temperatures are expected to rise, they are still expected to be 14 degrees below normal through at least Feb. 19, ensuring demand remains strong.
This is also likely to ensure production remains weaker. Additionally, the region has never seen temperatures this low or for this long a period according to S&P Global Platts Analytics data. This presents substantial downside risk for production going forward even as temperatures shift above freezing.
Producers will certainly work to get production back online, but how long that takes or if it happens after record cold caused damage to wells will be a downside risk to production forecasts the coming weeks or even months.
The region is now going into next month and the summer with inventories far below expectations. While NGPL Midcon's March futures already rose 33 cents/MMBtu the past seven days and the summer strip rose 5 cents to $2.72/MMBtu. As production continues to fall and inventories are raided prices are likely to strengthen further.
