Wild Few Weeks For NatGas. Goldman Weighs In With Post-Winter Storm Energy Commentary

Natural gas futures in New York reversed lower Tuesday morning after a historic eight-day rally that saw prices surge roughly 140%, as an Arctic blast and winter storm triggered widespread freeze-offs and curtailed production across major hubs in the eastern half of the US.

We've published extensive commentary on the NatGas market in the days leading up to and during the storm. Now, we turn to new insights from Samantha Dart, Co-Head of Global Commodities Research at Goldman Sachs, who offers her take on NatGas post-Winter Storm Fern:

While Winter Storm Fern's negative impact on US production has matched our baseline, incremental gas demand has beaten our expectations, and price-driven offsets have partially disappointed, on net leading to a 50 Bcf larger overall hit to US gas storage levels vs what we expected (Exhibit 1 and Exhibit 2). Specifically, US LNG feedgas and exports to Mexico declined by less than what we expected. Our updated end-Mar26/end-Oct26 storage expectations under current forward prices are 1.60/3.63 Tcf. This reinforces our view that Sum26 Henry Hub prices should remain above $3.50/mmBtu to incentivize continued growth in dry natural gas production to take storage to comfortable levels this summer. We maintain our $3.75/mmBtu Sum26 US gas price forecast and see two-sided risks to our forecast coming from weather and production uncertainty.

The beat in LNG feedgas demand has been particularly surprising in our view given the growth in US LNG export capacity in recent years, which would have allowed higher gas re-sales from US liquefaction facilities to the grid vs what we observed during the Winter Storm Uri, in 2021. In particular, the reported peak in production freeze-offs during Fern was comparable to Uri's, and cash gas prices, higher ahead of Fern ($28/mmBtu) than during Uri ($24/mmBtu) (Exhibit 3 and Exhibit 4). Yet, the peak drop in LNG feedgas was smaller now, at 7.4 Bcf/d (38% of capacity) on Jan 25, vs 8.6 Bcf/d (74% of capacity) at its Feb 2021 peak[1] (Exhibit 5).

We will continue to track feedgas as well as LNG loading data over the course of this week to gauge impact on European deliveries during February, but so far the data suggest a smaller reduction in LNG supply vs our initial 2.5 Bcf/d (19 mtpa or 71 mcm/d) monthly average estimate[2]. Despite this temporary reduction in US LNG supply, we maintain our 38/34 EUR/MWh ($13.00/$11.70/mmBtu) 1H26/2H26 TTF price forecasts given that the Asia-to-Europe price premium (JKM-TTF spread) has been much weaker than we expected, with Southeast Asia LNG imports in particular down year-on-year in recent weeks, while China is flat. This points to Europe likely taking a bigger share of global LNG supply in February vs our expectations.

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