Henry Hub prices are in flux. In early Sept, spot prices traded around $2.50/MMBtu, an increase of nearly 80% over lows seen in late June. More surprisingly, the natural gas benchmark was trading about 13% higher than levels seen in the same prior-year period, despite the COVID-19 pandemic and the worst U.S. quarterly economic performance in modern history. As we discussed in a prior article, elevated prices seemed disconnected with fundamental trends in the market. COVID cases are expected to rise across Europe and North America amid school re-openings and the onset of colder weather, while U.S. natural gas storage levels are high and rising. A recent correction has returned Henry Hub prices to about $2/MMBtu, which we believe better reflects fundamentals.   

As we noted previously, it’s possible that markets were betting that associated gas production would fall on lower crude oil production, supporting prices. With rig counts in the Permian stabilizing, we don’t find this view very persuasive, so let’s dive into another demand factor that could support Henry Hub prices: U.S. natural gas exports. With LNG netbacks rising, U.S. LNG exports will grow in the near-term; pipeline exports to Mexico and Canada will also likely rise year-over-year. While exports are expected to support Henry Hub prices, domestic demand accounts for the bulk of natural gas consumption and will determine if prices are overvalued.