Henry Hub and potential TTF price cap – by @andrepaltry

As has become (nearly) traditional, when I’m on the ForexLive desk, I get my good friend and Nat Gas expert Andrea Paltry to give us a little report.

So here you go…

Henry Hub natural gas prices are currently trading up almost 30 cents with the most traded July ’22 contract (N) at $8.82 MMBTU. The entire forward curve is strongly up, with two different trends to stress (see the graph below): (1) the strong backwardation we have, if we consider all the Cal’22 (calendar’22) compared to the Cal’23. Indeed, April’ 23 trades at $5.64, with a huge ‘widow maker premium’ (March’23/April’23 spread of around $1.82; (2) the backwardation we have within the Cal’22, with July’22 contract currently trading over November (X), that is at $8.754

HH CAL

In the Henry Hub market, those conditions have not been present since the pre-shale era, with the prices skyrocketing each week passing (last update here, one month ago, we were $1.5 below the current price), and the Supply/Demand balance overall not changing a lot.

During last couple weeks, we had a US lower 48 production increase, up to reach year to date high readings around 96 bcf, but it seems like we are not able to keep these levels, since at the start of this week we are again 1 bcf below these highs. What’s impressive, though, is the demand side. Indeed, power burns last months reached ‘off the charts’ value for the period and, even last week, with peaks around 36 bcf, the weather adjusted reading was astonishing. If we keep this path, we can easily see well over 50 bcf/d power burns during the peak of summer demand. This pattern clearly shows the fact that the classic gas to coal switching is not a factor anymore, even at prices close to double digit.

Then, finally the exports. Indeed, last week we touched LNG exports record, at 13.6 bcf, before falling into the classic spring maintenance (right now we are below 12 bcf).This is important for several factors, but here I want to highlight 2 points: (1) if we keep an average of 13 bcf/d for the summer, this will have a huge impact on End of Season storage number; (2) the potential issue of TTF cap in Europe.

About the first point, even if last week EIA printed a relatively looser (and personally unexpected) injection of 90 bcf, the trajectory of storage in my model is not safe at all, pointing to a relatively dangerous level of 3.18 tcf EOS (with the market being comfortable around 3.6 tcf). Obviously, it’s pretty important the weather, and below we can see that during the weekend we gained some demand (3-6 cooling degrees, CCDs) in both most important models, GFS and Euro Ensembles, with a hot upper ridge building in South-Central in the 8-14 day period. Moreover, we need to carefully watch at the start of the hurricane season (see below as well the first tropical storm, Alex, not affecting Henry Hub market).

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About the second point, it’s even more important for worldwide natural gas market. Indeed if we watch the charts below (the sources are NGI, EIA ICE and ACCC), LNG exports have a lot of implications, for Asia and Europe. On the one had, we can easily see the path of LNG exports for the next couple years (we will almost reach 20 bcf/d in 2025, more or less 1/5 of the overall US production). On the other hand, we see that for now there is an aggressive delivery to Europe, where TTF price trades around $27-28 MM BTU, compared to the ASIA JKM trading $4-5 below.Right now the spread TTF-JKM favors the former rather than the latter. What if Europe decides to put a cap on TTF? Let’s say at $13-14 MM BTU?….

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Andrea Paltrinieri

Associate Professor of Banking and Finance, Università Cattolica del Sacro Cuore

Natgasweather and Energy Working analyst

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