New York—US Midcontinent forward gas markets are bracing for enduring supply tightness amid mounting concern that the recent and massive drawdown from regional inventories could endure through next winter.
At hubs across the region, including ANR Okla., NGPL Midcontinent, ONEOK Okla., Panhandle Tx-Ok., Enable Gas East and Southern Star, next winter's Dec-Jan-Feb strip price has strengthened to over $3/MMBtu this month, S&P Global Platts' most recently published M2MS data shows.Prior to this winter's record-setting market rally, Midcontinent gas prices had typically remained in the mid-$2/MMBtu area, even during the peak-winter months of December, January and February.
After Midcontinent hub prices hit record levels this month at over $1,100/MMBtu in some locations, a massive call on the region's gas storage has reset price expectations for next winter as forwards traders brace for stronger summer injection demand and lingering supply tightness.
Midcon storageFalling to minus 4 degrees Fahrenheit earlier this month, population-weighted temperatures in the Midcontinent hit their lowest on record in at least 16 years, S&P Global Platts Analytics data shows.
Along with record demand, the region faced a steep decline in gas production amid a historic freeze-off, prompting a steep drawdown from storage to bridge the deficit. Month to date, inventory withdrawals in the Midcontinent have totaled nearly 63 Bcf–equivalent to a 32% decline since end-January.
Over the next two weeks, forecast data show regional temperatures averaging a comparatively balmy 46 degrees, slowing the drawdown from storage as heating demand and power burns continue to retreat.
For the balance of March, a recent 30-day outlook published by the US National Weather Service shows temperatures in the Midcontinent facing a 33% to 40% risk to trend above average.
Despite the upside risk, regional storage is still likely to finish the heating season below its average end-March level over the past five years. With US and regional production already at a deficit this year, Platts Analytics is projecting a smaller summer-season build in the Midcon, potentially leaving inventories there at their lowest pre-winter level on record by late October.
Production riskAfter this month's steep decline, production in the SCOOP/STACK–the Midcontinent's largest supply source–has rebounded to pre-storm levels around 3.6 Bcf/d.
With the two basins already facing a secular decline, though, production is currently forecast to remain on a steady downward trend through at least first-quarter 2022 as drilling interest remains weak.
After US onshore crude prices dipped briefly into negative territory last March, the SCOOP/STACK, along with other major basins, suffered a steep drop in rig count, which hit a low of just eight last summer. Despite a modest recovery over the past eight months, the SCOOP/STACK's current count at 16 represents just over one-third of its total in first-quarter 2020, data published Feb. 25 by Enverus shows.
