November 22, 2019
Note: Futures prices reflect settlements as of November 20, 2019.
The current outlook for U.S. natural gas prices at several key regional hubs reflects market expectations for lower prices in January and February 2020. Two factors account for generally lower prices: lower natural gas futures prices at the U.S. benchmark Henry Hub location and lower regional differentials to the Henry Hub (known in natural gas markets as the basis). The Henry Hub price is lower because of continued production increases.
Natural gas basis swaps and futures contracts are generally financial instruments that reflect the difference between the futures price of natural gas at the benchmark Henry Hub in Louisiana and the forward price of natural gas at another delivery point elsewhere in the country. Large values often indicate transportation congestion on pipelines between producing regions and demand markets.
Pacific Northwest: The basis price at the Sumas hub in the U.S. Pacific Northwest was relatively high in early 2019 following the October 2018 pipeline explosion in British Columbia, Canada, and the resulting lower natural gas flows to the U.S. Pacific Northwest. As pipeline flows into the region have recovered, natural gas prices in the Pacific Northwest have fallen. Trade press reports indicate that in January and February 2020, traders expect the Sumas price to average $1.25 per million British thermal units (MMBtu) higher than Henry Hub. In January and February 2019, the Sumas basis averaged $1.53/MMBtu.
Chicago: For January and February 2020, trade press reports indicate that traders anticipate that the Chicago Citygate basis will be about $0.26/MMBtu higher than at the Henry Hub, similar to the 2019 difference for those same months. EIA expects that large volumes of low-cost natural gas from the Appalachia Basin will continue to flow into the Midwest. Increased deliveries of natural gas to the Midwest could limit the Chicago price premium compared with the Henry Hub despite expected increases in demand for space heating in January and February.
New England: New England’s Algonquin Citygate price is typically significantly higher that the Henry Hub price throughout winter because of high heating demand and high utilization and constraints on key natural gas pipelines in the region. In January and February 2019, spot prices at Algonquin Citygate were $5.30/MMBtu above Henry Hub. Trade press reports indicate that, in January and February 2020, traders expect that the Algonquin Citygate price will average $5.10/MMBtu more than the Henry Hub price.
Southern California: Trade press reports indicate that traders expect lower natural gas prices for Southern California compared with last winter. In January and February 2019, the SoCal Citygate natural gas price was about $2.70/MMBtu more than at Henry Hub. In mid-November, the futures price at SoCal Citygate for January and February 2020 has been trading $1.66/MMBtu higher than the Henry Hub price. In the past year, Southern California pipeline operators have increased pipeline capacity in the region, and California regulators have allowed more flexibility in withdrawing natural gas from the Aliso Canyon storage facility that was curtailed in October 2015 because of leaks.
West Texas: Continued crude oil and natural gas production in the Permian Basin in western Texas and eastern New Mexico has led to pipeline constraints as production exceeded available pipeline capacity to deliver the natural gas to markets. The recent completion of the Gulf Coast Express pipeline added 2 billion cubic feet per day (Bcf/d) of takeaway capacity in the region, partially alleviating this constraint, but natural gas production in the region has continued to increase. Trade press reports indicate that traders expect the price at the West Texas Waha hub in January and February 2020 will be $1.27/MMBtu lower than the Henry Hub, a narrower basis than the negative $1.57/MMBtu average in January and February 2019.
Principal contributor: Stephen York