An East/West Divide
Growing production across the border in Colorado (DJ Basin) and in the Powder River Basin and continued growth in production in the Marcellus (pushing back Rockies supply) is creating bottlenecks for gas in SE Wyoming. As you can see below, the difference in pricing between Cheyenne and Opal was $0.70/MMBtu on October 2, 2019. Pipelines traditionally flowing West to East are working to reverse traditional flows. Weakening finances for producers and limited capital market access is hindering the traditional “producer push” to finance long term contracts necessary to fund expansion and reversal projects. While several westward expansions targeting the higher priced Opal hub area have been proposed, they are at least a year out in terms of resolving bottlenecks and may be too small to have a longer lasting impact on gas flows.
For the month of October, 2019, the NYMEX natural gas contract settled at $2.428 per MMBtu, the lowest settlement price for the October contract in 9 years. Natural gas prices reported by Platt’s Gas Daily for flow on October 2, 2019 were as follows:
Pricing Point Price ($/MMBtu Basis to NYMEX Henry Hub Hub $2.33 Cheyenne Hub (SE Wyoming) $1.48 -$0.85 Opal Hub (SW Wyoming) $2.18 -$0.15 Chicago $1.83 -$0.50 SoCal (Southern California) $2.30 -$0.03 Waha (West Texas) $1.34 -$0.99 Asia (November delivery LNG) $5.69 +$3.36 Central Mexico (Tula) $3.74 +$1.41
While the 5-year outlook for natural gas prices is bleak – the forward curve does not have a $3 handle on any month in that time frame – the law of supply and demand will ultimately re-balance the market. Producers have limited access to capital and cannot continue to drill in this low-priced environment.
1 – NYMEX crude oil prices for November delivery settled at $54.15 on October 1, 2019. Brent pricing for the same period settled at $59.29. Southwest Wyoming Sweet crude was trading at $46.58 (Plains All American). The attack on Saudi Arabia in September pushed prices briefly to in excess of $60 per barrel but they fell rapidly back to pre-attack levels.
2 – Long-term natural gas price differentials for Wyoming using a composite price for all of Wyoming
3 – Natural gas storage inventory for the week ending September 2019 sits at 3.205 Bcf and is rapidly approaching the five-year average for inventory builds.
Click image to enlarge
4 – Temperature forecast for Nov-Dec-Jan 2019-20
Click image to enlarge
5 – Precipitation forecast for Nov-Dec-Jan 2019-20
6 – Current snowpack status in the western US except for most of California. Snowpack is well above normal in most basins