Below, we show two the evolution of basis -- the difference between the local price and the price for Henry Hub (NYMEX futures) -- for two different Haynesville locations. Columbia Gulf Mainline is more consistent with pricing on the eastern edge of the play, while NGPL TxOk is priced based on deliveries near the western edge (call it Carthage, TX for convenience).
Note how both locations have seen basis deterioration in the first 3 1/2 months of this year. The slippage is mostly concentrated in summer prices, rather than winter prices. We don't think gas producers are crying much over this though. We'll explain below.
A sharp rally in NYMEX Henry Hub prices take the sting out of the basis weakness. The overall price in the Haynesville has expanded. The chart below shows Henry Hub's rally started just as the basis weakness emerged. In fact, the basis weakness is likely related to what happened at Henry Hub. First, higher prices encourage higher production. Second, pipeline capacity south out of the Haynesville was already approaching capacity, so discounts become more pronounced.
The better-than $1 rally in Henry Hub more than offsets the meager losses in basis discounts.
If a producer wants to take hedge these high prices, there are two steps, and both are important.
If your price formula for your gas is a locational price, such as one of the Platts Inside FERC locations, a complete hedge requires:
For more explanation, send us a note to research@aegis-hedging.com.