Basis-price strength at the Chicago city-gate has defied gas demand weakness in the Midwest this month, thanks to record storage injections and lower net inflows. With regional inventories on track to fill ahead of schedule, though, Chicago's recent price trend could see a big reversal by later this summer.
In April, the Chicago cash market has traded at just a 3 cent discount to benchmark Henry Hub gas–its highest month-to-date average since April 2018, S&P Global Platts data shows.Recent price strength comes despite comparatively weak demand for gas in the Midwest this month. Through mid-April, total demand in the Midwest market area has trended at its lowest since the 2017 season, averaging just 11.5 Bcf/d, according to data compiled by S&P Global Platts Analytics.
Mild shoulder-season weather is largely to blame. Month to date, population-weighted temperatures in the Midwest have averaged a balmy 51 degrees Fahrenheit, keeping residential-commercial heating demand to just 5.1 Bcf/d–nearly 1 Bcf/d below its weather-normal average for the month.
Mild temperatures, strong wind generation and higher outright cash prices have also kept Midwest gas-fired power burns in check this month. April to date, generator demand in the region is down more than 650 MMcf/d compared with year-ago levels, Platts Analytics data shows.
Injection demand, inflowsStrong injection demand and lower net inflows to the Midwest have more than compensated for this month's demand weakness.
In April, Midwest storage demand has averaged 1.2 Bcf/d, making for the strongest start to injection season in at least five years. Over the same two-week period, net inflows to the Midwest market area are down sharply compared with historical averages. Thanks to strong import demand from Eastern Canada, net inflows to the Midwest this month are at their lowest since 2017, averaging just 10.8 Bcf/d.
During the first week of April, cash prices at the Dawn Hub in Ontario averaged a nearly 6 cent premium to Chicago, likely signaling similar injection-demand strength in the Eastern Canadian market.
As early-season storage demand in Eastern Canada and the Midwest wane, though, Chicago's recent price strength, vis-à-vis Henry Hub, is likely to evaporate by late summer.
At an estimated 385 Bcf, Midwest storage levels are already trending about 38 Bcf above the five-year average, up from a nearly 20 Bcf deficit at the start of March, Platts Analytics data shows. With the pace of injections likely to accelerate through the summer, as is historically the case, Midwest inventories could begin approaching capacity limits by September.
Forwards markets already appear to be bracing for that outcome with Chicago basis currently pricing at a discount to Henry Hub of 16-17 cents/MMBtu for both September and October, S&P Global Platts' M2MS data shows.
