Dry natural gas production in the Southwest Pennsylvania subregion has made a full return over the last week as Dominion cash prices have made very significant rebounds off the lows.
At prices below $1.25 / MMBtu at Dominion in late February 2024, predominantly EQT and other producers curtailed production in the dry gas dominant subregion of Southwest Pennsylvania. As cash prices have recently rebounded, we have witnessed a substantial rebound in production as nearly all the production can be turned on either remotely with the click of a mouse on the computer or quickly on-site with a crew at the wellhead.
Forward prices at Dominion South have also rebounded significantly above the $1.50 / MMBtu mark where EQT in their analyst conference call indicated that they may bring back their curtailed production.
Forward prices at Dominion South are now well above $1.50 / MMBtu and additionally there isn’t much contango between June 2024 delivery and October 2024 delivery. This indicates that the returning production should stay as long as Dominion South prices don’t go back down to $1.25 / MMBtu.
TGP 500 Basis – A Glimpse of the Future for US Natural Gas?
The basis market for natural gas is the most fundamental part of the natural gas market to look for indications about what will occur for the overall market. The basis market for natural gas trades and quotes as a spread to the NYMEX Henry Hub futures market. Summer, winter, and calendar year strips still sometimes trade the old school way via broker voice box. One additional benefit in the basis market is that movements in the market are not tainted by CTAs (Commodity Trading Advisors), other technical trading-oriented hedge funds, and high frequency trading algorithm shops who purely trade on past price history or operate as sophisticated computerized front-running trading machines. That’s because liquidity in the basis market is too low for these purely price-oriented organizations to participate in. Basis market traders are fundamentally driven hedge funds or merchant trading shops who have natural gas transportation, natural gas storage, and natural gas power generation assets. Sometimes movements in the basis market occur a few days before public news is available about pipeline maintenance as merchant trading shops who have transportation and storage receive the information ahead of time from the pipeline companies.
One of the basis markets where there is indication that the advent of more LNG export capacity coming online in 2025 and 2026 is going to be more bullish than the market expects is at the Tennessee Gas Pipeline 500 Leg. The Tennessee 500 leg will feed natural gas to the Plaquemines LNG plant located in Plaquemines Parish, Louisiana, approximately 20 miles south of New Orleans. The Tennessee 500 leg basis market for the 2025 and 2026 calendar year strips is trading at substantial premiums to the 2025 and 2026 NYMEX Henry Hub calendar year fixed price strips even though those fixed price strips are already at large premium pricing compared to current $2.65 / MMBtu June 2024 NYMEX Henry Hub.
This overall indicates that the Henry Hub market is in for major bullish surprises once the LNG liquefaction capacity expansions get rolling in 2025 and 2026.
