Commodity Market Report
North America gas short-term outlook March 2020: Henry Hub reaches a 25-year low
Report summary
We’re in uncharted waters here. Henry Hub has reached a 25-year low as the market has shifted focus from associated gas declines resulting from the oil price collapse to the magnitude and duration of demand loss expected from the coronavirus pandemic. One hopes for optimism. Distinctive front and back markets are developing. The first, bearish after a mild winter with over 2 tcf in storage and expected steep declines in Q2 2020 economic activity, will allow an entrance to the 2020/2021 winter with ample supplies. The back market, though, looks to be a perfect storm of bullishness: structural production declines juxtaposed with a rebound of economic activity. For even a modest storage refill, Henry Hub will need to roar above $2.50 to incentivize dry gas production. First things first, though. The front market will need to resolve before we chart a course through the more distant future.
Table of contents
- Henry Hub gas prices are at 25-year record lows as the market focus on associated gas declines due to the oil price collapse has shifted to the magnitude and duration of demand loss expected from the coronavirus pandemic. We are in uncharted territory, with assumptions constantly being revised. Although a high degree of uncertainty exists, we stay optimistic and expect structural associated gas declines to have a greater impact longer-term, while the demand losses hopefully should be more temporary.
- Based on such, a distinctive market of front and back is developing. The front market remains bearish coming out of winter with over 2 tcf in storage. Expected steep declines in Q2 2020 economic activity allows October 2020 storage to enter next winter with ample supplies and a touch higher than the five-year average near 3.8 tcf. However, the back market is expected to have structural production declines steepening juxtaposed with a rebound of economic activity. In order for October 2021 storage to refill even to a low 3 tcf, Henry Hub will need to roar above $2.50 to incentivize a return of dry gas drilling in the Northeast and Haynesville. But first and foremost, we need to resolve the front market before narrowing the uncertainty on the back market.
- There are risks of infrastructure delays due to reduced workforce; however, Waha basis has significantly tightened due to lower associated gas production.
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