Henry Hub Surges Sharply Over Past Week

Henry Hub has surged sharply over the past week, driven by a classic winter squeeze rather than a change in long-term fundamentals.

That’s what Ole R. Hvalbye, a commodities analyst at Skandinaviska Enskilda Banken AB (SEB), said in a SEB report sent to Rigzone on Thursday, which highlighted the “massive rally in U.S. natural gas”.

“Forecasts now point to well below-normal temperatures across large parts of the Lower-48 from around 23 January into early February, particularly in the eastern half of the United States,” Hvalbye stated in the report.

“We see temperatures at 5-10 degrees below the 30-year normal! This is naturally lifting heating demand expectations at a sensitive time of year,” he added.

“As a result, Henry Hub has seen a launch from … [around] $3 per MMBtu [million British thermal units] on the 16th of January to the current $5.3 per MMBtu, an increase of … [around] 80 percent in only five trading days. Abnormal? Yes, indeed,” he continued.

In the report, Hvalbye noted that U.S. supply has tightened at the margin.

“Lower-48 dry gas production has dipped toward ~110.5 Bcfpd [billion cubic feet per day], down from above 112 Bcfpd earlier in the week, partly reflecting cold-weather disruptions,” he said.

“LNG feedgas demand remains elevated at just over 18 Bcfpd, even though flows at Sabine Pass eased slightly, partly offset by higher intake at Elba Island,” he added.

Hvalbye also outlined in the report that positioning has amplified the move higher in Henry Hub.

“Futures trading volumes hit record highs, and hedge funds have been forced to cover short positions built during the recent sell-off,” he said.

In a media advisory sent to Rigzone late Tuesday by the AccuWeather team, AccuWeather warned that “a major winter storm is expected to bring dangerous ice and snow impacts to more than 150 million people across more than two dozen states starting Friday and through the weekend”.

“Severe, long-lasting ice impacts are possible across parts of Texas, Louisiana, Arkansas, Mississippi, Alabama, Georgia, South Carolina, and North Carolina,” the advisory said, adding that “risk of snow extends from the Plains and south-central U.S. through parts of the mid-Atlantic and Northeast Friday through the weekend, with a foot or more of snow possible in some areas”.

The advisory went on to warn that a “blast of dangerously cold air will bring some of the lowest temperatures so far this winter to parts of the northern and central U.S. later this week”.

In a follow up statement sent to Rigzone by the AccuWeather team late Wednesday, AccuWeather warned that “significant freezing rain and severe icing are forecast from northern Texas across the south to the Carolinas”.

“A large zone of 6-12 inches of snow is expected from New Mexico and Texas to Virginia and along parts of the I-95 corridor in the mid-Atlantic and Northeast,” that statement added.

“Widespread power outages and major travel disruptions by ground, air, and rail could last for up to a week or longer in areas hit hardest by the ice storm,” the statement went on to warn.

In this statement, AccuWeather Chief Meteorologist Jonathan Porter said, “this storm is a rare, high-impact storm for the South”.

“Heavy ice accumulations followed by a deep freeze can lock in dangerous conditions long after the storm passes,” he added.

“Travel conditions can rapidly shift from manageable to impossible in a matter of minutes, especially when temperatures drop and wet roads freeze. Anyone in the path of this storm should seriously reconsider travel plans and be in a safe location before conditions deteriorate,” Porter continued.

“People in the path of this storm should prepare to hunker down for the weekend,” Porter warned.

To contact the author, email andreas.exarheas@rigzone.com