Henry Hub settled at $3.71/MMBtu for Wednesay’s gas day, its highest close in over two years. Cash prices at the hub averaged $2.04/MMBtu in January-June, before starting to make gains in July. Since July 1 prices have averaged $2.81/MMBtu, and included a roller coaster ride back near $2/MMBtu a month earlier before more than recovering. Henry Hub cash first broke $3.00/MMBtu this year on September 14, and has averaged $3.46/MMBtu over the last week. The price climb that began in July has boosted drilling in the southeast, as the Haynesville and Non-Haynesville added 12 rigs since the week ending July 22. November marked the first year-on-year increase in Southeast production, which came in just above November 2015 at 10.6 Bcf/d. Month-to-date Southeast production has come off slightly, averaging 10.4 Bcf/d, but should prices remain high as the market settles into winter, production could rise from a resurgence in drilling. Platts Analytics' Bentek Energy forecasts December Southeast production at 10.6 Bcf/d
Wind energy continues to play a larger role in the Midwest and Midcontinent regions as there is approximately 5,000 MW of wind capacity that is expected to come online by the end of the year. This is more than double the capacity that has come online over the last 12 months, which brought on almost 2,200 MW, and could potentially displace up to 357 MMcf/d of natural gas demand in the regions. While it is likely that several of these projects will not be completed in the next few weeks and instead pushed to 2017, there is an additional 4,800 MW of wind capacity expected to come online next year, combining for 700 MMcf/d of potential gas demand displacement between the end of this year and next. Over 58% of wind capacity that is set to come online over this time period is in SPP territory. The onslaught of new wind farms throughout the stretch of SPP’s territory has made a significant impact on its overall market share in power generation, averaging almost 23% year-to-date, or 8% more than the same time last year, bringing it in line with gas generation and reaching as high as 50% on a daily basis. Gas demand continues to grow in the Midwest despite these massive wind capacity additions, with year-to-date Midwest burn levels up 642 MMcf/d and 41%. However, these states are still expecting over 4,100 MW in new wind capacity over the next year, or 293 MMcf/d of potential gas demand displacement.
The Southwest cell region escaped the atmospheric river relatively unscathed as the storm's impact materialized heavily in the Northwest and is forecast to push east through the rest of this week. The demand forecast from last Friday for the Southwest cell region showed a peak of 11.2 Bcf/d on December 7 but evening cycle estimates for gas day 7 came in at 11 Bcf/d; in line with the prior season-to-date high of 11 Bcf/d on November 30. While PG&E has a Low OFO in effect for gas day 7, SoCal Gas' balance shaped up with no issues as withdrawals were nominal but utilization at Ehrenberg and Needles stands at 85% and 98%, for gas day 7. SoCal City Gate cash settled at $3.811/MMBtu for GD 7, which is nearly flat to SoCal Border and typically happens after storage withdrawals are used to meet strong, upward fluctuations in demand (e.g. December 28, 2015 EFO, July 4, 2016 holiday weekend). The Northwest set a winter demand high of 3.3 Bcf/d for GD 7.