Sweltering heat in south-central US and Mexico is forecast to push Henry Hub cash prices to $2.55/MMBtu on average in July, as gas-burn for power generation soars due to rising demand for cooling and exports to Mexico stay high. Industrial gas demand, notably for refining and chemicals production, is at elevated levels as the American economy is gaining speed while LNG feedgas demand stays rangebound.
Energy Aspects sees further upside for prices as demand picks up throughout the month. “The narrower spread between cash prices and the prompt contract should disincentivise some storage activity and limit overall injections,” analysts commented. Storage in salt caverns in South Central is likely to lag first, given its faster cycling time and high regional demand.
But it is not just power load that lifts overall gas demand, as net pipeline gas export to Mexico has hit new daily records above 7.0 bcf/d, prompting analyst to revise their forecast for US exports to its southern neighbour. “Mexico is enduring the same heatwave as the South Central, with the call on gas-fired generation boosted by declining hydrogeneration following a drought in the country,” analysts said, noting most of the increase in flows came via NET Mexico into the state of Nuevo Leon as well as further south via the Los Ramones Sur pipeline.
Back in the United States, business activity is expanding and some of the most gas-intensive industries have shown strong demand already in the first half of the year which is set to continue. Chemicals production posted its highest utilisation rate since 2013 in May while national refinery capacity utilisation has been above 90 percent throughout the second quarter and hit a five-year high of 96 percent in early June. Analysts expect the start-up of new steel mills and petrochemical facilities add to robust gas consumption, rising by 0.1 Bcf/d in the second quarter.
LNG feedgas is the only sector that is not showing summer gains. Terminal utilisation is forecast at 80 percent, the lowest since June 2021. Sabine Pass feedgas demand averaged 3.0 bcf/d in June amid maintenance on Trains 1&2. From other terminals, Calcasieu Pass feedgas flows have remained nearly 0.4 bcf/d lower than its operating capacity since early June, while Corpus Christi registered a 0.7 bcf/d decline.
Looking ahead, analysts expect a July build of 181 bcf. “Once Sabine Pass returns, and with Freeport operating above 90 percent capacity, we expect 1.8 bcf/d of year-on-year feedgas growth in July to help offset 2.6 bcf/d of y/y Lower 48 production gains,” they said. Both Permian and Haynesville output is currently 0.5 bcf/d below their May high, but could recover by 1.3 bcf/d in July as storm-related outages and El Paso maintenance wane.
