A confluence of historically high storage inventories (15% above the five-year historical range), mild winter weather and robust shale gas production has placed considerable weight on Henry Hub front-month prices since the turn of the year, with prices levels sat below $2.00/mmbtu for much of Q1-24.

A February decision by some U.S. gas producers to curtail their production provided some short-term support to prices. However, these gains have since been eroded by outages at Freeport, which look set to constrain LNG feed gas demand as we enter shoulder season.

The weak prompt has shifted the Henry Hub forward curve to a steep contango. As of late-March, the 2024 winter-summer spread sat at $1.16/mmbtu, up from the $0.95/mmbtu seen across most of 2023 for the equivalent forward contracts. The equivalent spreads for 2025 and 2026 are trading at $0.76/mmbtu and $0.72/mmbtu, respectively.

Along with the recent market softness, the seasonal spread has been supported by stronger demand expectations going into winter 2025. Market participants anticipate a tightening at the end of this year due to rising domestic electricity consumption and the start-up of new LNG facilities at Plaquemines and Corpus Christi.

Wider seasonal spreads are a strong driver of value for longer-cycle gas storage assets. Similarly, shorter-term gas price volatility is a value driver for shorter cycling assets. Two trends look set to impact this moving forward. First is the increasing variability in gas demand due to growing RES generation. Second is any global oversupply driven in part by the coming wave of new USGC LNG capacity, which would act to couple the U.S. market with the more volatile global market.

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