North America Commodities Research16 February 2024J P M O R G A Nwww.jpmorganmarkets.comGlobal Commodities ResearchShikha Chaturvedi AC(1-212) 834-3245shikha.chaturvedi@jpmorgan.comJPMorgan Chase Bank NAFirst a metaphor: Imagine walking through a dark tunnel with a glimmer of light up ahead. The path between you and reaching that light is mired in quicksand which if not navigated correctly is a promise to sink you into an abyss of no return. This dark picture is how we view the plight of most in the US natural gas upstream community today. But we remind our readers, there is a light at the end of the tunnel - at least for those who have exposure to Henry Hub.US natural gas futures price has fallen to levels not seen since June 30, 1995 on a settlement basis (unadjusted for inflation), highlighting that without weather, even ~30 years of knowledge and experience in this market is not enough to prevent the US upstream community from the potential for economic production curtailments. Amid the acute weather forecast changes milder (February weather is now forecast 615 HDDs vs the 10-year normal of 778 HDDs), our current end-March storage trajectory has risen to 2.2 Tcf while our end-October storage trajectory now points to 4.25 Tcf. As a reminder, embedded in our summer 2024 forecast is a pullback in production, driven by a reduction in the Northeast of~1.5 Bcf/day relative to December production, and we assume power generation will likely perform just shy of summer 2023 (300 MMcf/day lower summer over summer). With the decline in summer 2024 price, we tend to be more confident in our power generation outlook. This is not because we think there is more coal-to-gas switching demand to be gained ,but rather it now appears that renewable power generation is displacing coal-fired gas generation versus natural gas. However, we are less confident on the supply side, even if Wood Mackenzie revised its daily production prints lower by as much as 1.5 Bcf/day.We are growing increasingly concerned that our current assumption that the Haynesville basin declines ~500 MMcf/day summer over summer may be too optimistic given the relentless stickiness of production in the play (at least observed through daily production prints)— seemingly driven by the western portion of the basin and associated acreage in East Texas. This production growth, which has also been observed in the physical market, has shifted market expectations to a flat production outlook yoy for the basin. Revising to flat production in the Haynesville summer over summer would raise our end-October storage trajectory to 4.35 Tcf. Sill in winter, pointing to an end-October storage trajectory that could range from 4.25 to 4.35 Tcf with no sight of any price-related demand help is the very real catalyst for price to break through $2/MMBtu in such a significant way. And pri...
