Natural Gas Forward Prices Grind Even Lower as Market Awaits Production Response
Slammed by a lack of winter weather set against a robust supply backdrop, regional natural gas forwards fell sharply across the Lower 48 during the Feb. 8-14 trading period.
Henry Hub fixed prices for March delivery took a 35.6-cent nosedive week/week to exit the period at $1.620/MMBtu. The benchmark saw double-digit losses across the 2024 strip over the past week, showing bearish sentiment spilling past the winter months that have been hampered by underperforming weather-driven demand.
New England premiums were hit particularly hard, not just for March 2024 but also for Winter 2024/25.
Algonquin Citygate January 2025 basis plunged $1.905 week/week to end at plus-$6.747, Forward Look data show.
The updated 11- to 15-day outlook on Thursday from Maxar’s Weather Desk showed unseasonably mild temperatures blanketing the eastern two-thirds of the Lower 48 to close out February.
“In consideration to the primary biases of the winter thus far, the risk is that this period is warmer in the Midwest, perhaps including strong aboves,” Maxar said.
As for the latest six- to 10-day projections, the forecaster noted warmer trends for the Plains, Midwest and Northeast.
“Aboves and much aboves are widespread from the Interior West to Midwest early, peaking strongly above normal on day seven with highs reaching the mid-60s in St. Louis and approaching 80 degrees in Dallas and Houston,” Maxar said.
Meanwhile, a few Appalachian hubs saw basis differentials narrow modestly versus a heavily discounted Henry Hub during the Feb. 8-14 period.
Eastern Gas South March picked up 8.1 cents to finish 40.7 cents back of Henry, with similar gains for most contracts out to early 2025. Still, October 2024 fixed prices at the hub ended the period at just $1.134.
With the market paying close attention, recent earnings reports offered some clues as to how natural gas-focused producers intend to navigate what’s shaping up to be a challenging commodity price environment in 2024.
Haynesville Shale operator Comstock Resources Inc. revealed plans to cut back from seven to five drilling rigs.
“Being a pure-play natural gas company in a sub-$2 natural gas market calls for decisive actions to weather the volatility, and at the same time continue positioning Comstock to benefit from the longer-term growth in natural gas demand in the foreseeable future,” CEO Jay Allison told analysts Wednesday during a fourth quarter earnings call. “America will need to deliver an additional 10 Bcf/d to the LNG facilities currently under construction in the next few years.”
Meanwhile, management at Appalachian producer EQT Corp. pushed back on oversupply concerns, while also alluding to the opportunities presented by potentially higher pricing in 2025.
EQT CEO Toby Rice identified “two factors that we think about that would cause us to curtail. One is preserving the ability to not lose money…and the other one is we are looking in 2025, where you see $1 higher pricing, and that’s going to be further incentive for us to pinch back and deliver those molecules into a higher priced market.”
EQT CFO Jeremy Knop added that the company’s capital expenditures budget in 2024 will “have no real impact on our production this year. It really has an impact on production next year. We are just not under the same pressure that most of our peers are. So that allows us to be a little stickier and plan for the long term and not be as reactive.”
Recent Forward Look data continued to show significantly stronger pricing at Appalachian hubs like Eastern Gas South for 2025 versus the remaining 2024 contracts.
Eastern Gas South fixed prices exited the Feb. 8-14 trading period at $2.312 for July 2025, versus just $1.422 for July 2024.
Still, early 2025 contracts at Appalachian hubs have come under notable downward pressure year-to-date, similar to declines observed at Henry Hub, Forward Look data show.
Further To Fall?
Absent a production response, prices could have further room to fall in the months ahead, according to EBW Analytics Group analyst Eli Rubin.
“In the unlikely event producers fail to trim production in response to lower prices,” prices for the 2024 injection season could see “another 10% of downside even from currently depressed levels,” Rubin said in a recent note.
Faced with regional price weakness, “unhedged producers may increasingly reduce the pace of completions,” according to Rubin. “Any notable announcements from producers about withholding production due to low prices could balance an oversupplied market, help the Nymex curve reach bottom and potentially trigger a notable relief rally” over the next 30 to 45 days.
Mobius Risk Group analysts recently highlighted declines for 2025 prices that they said could indicate increased producer hedging activity.
Producers may be attempting to “bring higher-valued portions of the curve forward to soften the blow of very low near-term prices,” the Mobius analysts said.