Natural Gas Update -- Things Moving More Quickly Than Predicted (?) -- November 12, 2020

Getting real exciting really, really fast. We'll get the graphic tomorrow.

Link here.

Early winter demand has arrived in California, dipping into storage fields earlier than normal, and pushing SoCal Gas, city-gate prices above the benchmark Henry Hub as lower production in the Permian Basin looks to likely limit supply to the region during the withdrawal season.

Weaker inflows and stumbling production are expected to drive tighter Western US balances winter over winter, particularly in the US Southwest, despite declining demand as risks to additional production cuts and potentially underperforming imports from Western Canada loom, according to S&P Global Platts Analytics.

Platts Analytics data implies Southwestern production will shrink this winter over last by approximately 438 MMcf/d, slated to average 4.4 Bcf/d.

The bulk of the reduction will come from the Permian's Delaware Basin in New Mexico, which is set to lose 370 MMcf/d, or about 12%.

Should WTI prices continue to weaken, this could prompt operators in the basin to temporarily shut-in wells similar to what occurred at the height of the ongoing pandemic this past summer, tightening balances beyond current projections.

In addition to regional production declines, a bleak production outlook in the Rockies and West Texas will likely shrink how much supply is able to move toward Southwestern markets.

Platts Analytics forecasts show US Southwestern inflows from the Rockies and Texas will decrease winter over winter by approximately 312 MMcf/d and 1.1 Bcf/d, respectively.

Not only will stumbling production play a large role in tightening Southwestern balances this winter, but so could the Permian Highway Pipeline, especially if the pipeline enters service or ramps up months ahead of its estimated in-service date of April 2021. Any incremental competition and pull of Permian supply along this pipeline will likely come at the expense of westbound and northbound flows out of the Permian, unless Southwestern pricing strengthens to retain inflows.