Gas Futures Remain Volatile

October 8, 2021

Natural gas storage inventories in the U.S. are below the average recorded over the last five years and Canada is pushing even harder as the injection season ends. However, hubs in those countries report that prices have not remained stable since the dawn of the shale revolution due in part to North America’s new exposure to global gas market forces.

If North America experiences a colder-than-normal winter and inventories fall below 1 Tcf, price analysts expect the Henry Hub benchmark to exceed $10/MMBtu, and the other hubs to follow suit.

Energy analysts are nervous about what may happen to natural gas prices as we move closer to the winter months. The importing of natural gas from South and West Texas, Arizona and California continue to show fluctuating prices, highlighting the prices during the last week of October, where movements of up to 30 cents were recorded in the price of the molecule in a single day. At the end of October, the contract for the December-21 calendar was around US$6.2/MMBtu.

The memory and impact of the winter storm Uri from last February in Texas remains fresh in the memory of analysts, so the uncertainty in the prices that will be registered in the coming months have not changed much, since we could see a repeat performance and imply not only an increase in the cost of the molecule, but register unavailability again. Despite the bitter drink it represented, the country did nothing to stop its dependency on imported gas pipelines; therefore, it is imperative to review the ISTRANGASS and look for alternatives to develop a solid strategy in terms of the storage which is so badly needed.

According to some reports, Mexico imported just over 6 bcf daily in recent days, but will need to increase that amount in the coming weeks as winter weather increases, and cold temperatures roll in.

Recently, imports have come mainly through the Texas systems, in which almost 5.5 bcf per day were recorded last October and the remaining 0.5 bcf came from the Southwest of the United States; therefore, we must remember that spot gas prices in the Southwest region have been some of the most expensive and volatile in the US over the last six months, driven upwards by the limited capacity of gas pipelines.

Unfortunately, the vast majority of subject matter experts (SMEs) do not have the economic- financial capacity to cover their exposure in the markets. However, those that have an electricity contract with a generator that consumes industrial gas could be in a position to seek an ability to cover at least the portion of natural gas that their electricity demand requires.

Those with the possibility of covering themselves directly in the market have been doing so for the coming t winter season, so they can have some “security” since prices may not be the most attractive, for the upcoming winter.

Reviewing different sources, we believe that most place the price of Henry Hub gas on the basis of $4.50-$4.60 for Calendar-22; which is a good sign if we compare it with the observed average price of $5.60 for the Nov-21 to February-22 calendar. The estimated average price for 2022 of $4.50 should be good enough to promote its production to levels of 96.4 bcf per day and for the inventory to have solid storage by the end of 2022.

The SISTRANGAS requires between 6.9 and 7.3 bcf per day to ensure sufficient pressure in the system. In recent days, the average placed it within the range of 6.6 bcf per day. The current demand is almost 4.7 bcf, of which the national production contributes about 1.3 bcf mainly from the south of the country (0.8 bcf).

We are continuously monitoring the evolution of future natural gas prices, if you require us to help you find a window of opportunity please contact us.