Midcontinent basis has risen sharply at points, but it is limited by a lazy downstream market.
While gas supply is likely to soon decrease, Chicago, a downstream demand market, is keeping a lid on producers’ basis pricing. Recent increases in Midcontinent gas basis present a good chance to hedge.
Across the producing areas west of the Mississippi, basis pricing has rapidly risen. The chart below shows historical basis among Waha (West Texas), and the major Midcontinent locations (Panhandle, ANR, and NGPL Midcont), eastern Oklahoma as Centerpoint (a.k.a. Enable). Chicago basis sits atop them all.
All these non-Chicago points are tied to the Chicago area via large, long-haul pipelines. Chicago depends on these areas for supply, and the basis locations tend to have some correlation.
However, the chart shows that recently the non-Chicago prices have risen to within a very narrow spread to Chicago.
Narrow transportation spreads suggest less gas could be flowing to market. So, has Chicago pricing moved higher? No, Chicago has been very stubborn. The chart below shows the next five seasons of Chicago basis. Despite the upstream prices rallying, Chicago has stagnated.
Chicago’s Summer ’22 strip has moved up a little, and it’s Winter ’22-’23 strip has done the same. But you can see that those specific strips have historically traded higher – over +$0.20 in mid-2016. Further, from the first chart, it is obvious that winter-time Chicago basis has realized much higher, too.