East Texas base down more than 20 cents in April
Southeast LNG demand up 1.6 Bcf/d in 2022
Texas-Louisiana striker spreads wider in 2023
Premium gas prices at the benchmark Henry Hub in the United States are driving more Texas natural gas eastward as Gulf Coast market prices rise to meet record LNG exports and a resurgence of industrial demand.
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Last fall, as Henry Hub spot gas prices hit all-time highs at over $5/MMBtu, East Texas spot markets appeared to break apart, widening their discount to the reference.
In April, base prices at major East Texas locations are down sharply from the year. At Katy Hub, the spot market traded nearly 18 cents behind Henry Hub; at Houston Ship Channel, prices averaged about 20 cents below the benchmark. In April 2020, the two hubs were trading at a premium of around 3 to 4 cents, according to data from S&P Global Commodity Insights.
The lower base prices in the East Texas market come as the price of Henry Hub and other nearby locations rises in response to growing demand along the U.S. Gulf Coast – primarily terminals. export of LNG from Louisiana.
In 2022, LNG feed gas demand from Louisiana’s only three operating terminals averaged nearly 7.3 Bcf/d. Including demand from the Kinder Morgan terminal on Elba Island in Georgia, total feedstock demand in the southeastern United States averaged more than 7.6 billion cubic feet per day this year, compared to an average of 6 billion cubic feet a day over the same four-month period in 2021, according to data from S&P Global.
Record LNG export demand in the Southeast was also supported by a resurgence in industrial gas demand in 2022 and an increase in gas-fired electricity consumption by generators in the region.
In April, industrial demand in the Southeastern United States averaged nearly 6.3 billion cubic feet per day to reach its highest level for the spring month since 2018. The rebound in demand for consumers, strengthening refineries along the U.S. Gulf Coast and slightly colder weather this winter have all been supportive of stronger industrial demand in 2022, according to recent analysis published by S&P Global.
Gas demand from the electricity sector is also on the rise in the Southeast. Over the past 13 months, power generators in the region have retired more than 2.2 GW of coal-fired capacity, much of which has likely been replaced by natural gas. This winter, and especially this spring, a spike in coal prices has likely also prompted a greater shift from coal to gas. In April, demand for gas-fired electricity in the Southeast averaged nearly 8.8 billion cubic feet per day, setting a record for the month, according to data from S&P Global.
From June to October, the futures market calls for base discounts of around 14 cents at Katy Hub and Houston Ship Channel. While prices at both hubs are higher during the peak winter months of 2022-2023, even deeper base discounts are expected to return to the East Texas gas market in the summer of 2023 and into the summer of 2024, according to data from S&P Global.
As LNG export demand continues to grow in Louisiana with the potential start of future projects by Venture Global, Tellurian and others, it seems likely that Southeast and Gulf Coast gas markets will continue. to offer higher prices compared to East Texas.