Speculators Sour on Houston Ship Channel Forward Natural Gas Prices, COT Data Show

Key insights on the natural gas market provided by NGI’s price and data analysts

• Natural gas buyers and sellers monitor changes in futures and swap contract open interest from the Managed Money segment as published in the weekly disaggregated Commitment of Traders (COT) report issued by the U.S. Commodities Futures Trading Commission. As of the latest COT report dated Sept. 9, of the 54 U.S. natural gas related futures and swap contracts listed, speculators are most bearish on one particular location: Houston Ship Channel (HSC). These traders may be concerned about an increase in gas flowing from West Texas to the Katy/HSC area, particularly as Golden Pass LNG gets set to ramp as early as this December. Whatever the reason may be, they are firmly in the bearish camp.
• The Intercontinental Exchange (ICE) lists both a Houston Ship Channel basis swap and an index swap contract, each with contract sizes of 2,500 MMBtus. As of Sept. 9, speculators were short 194,046 HSC basis contracts and long only 2,734. For the HSC index swap, they were short 127,668 contracts and long zero.
• To put those numbers into perspective, these directional bets represent 27% and 31% of total open interest for those contracts, respectively. Material amounts indeed. Although these net short positions were both down slightly week/week, they have risen sharply since mid-July, and indicate that speculators are betting HSC prices will fall both relative to the Henry Hub and on an absolute basis.
• A quick check of individual open interest figures shows 95% of combined open interest for those two contracts lies through the end of 2027. According to NGI’s Forward Look curves, HSC basis prices are expected to average minus 36 cents/MMBtu for the final three months of 2025, minus 29 cents for 2026 and minus 23 cents for 2027, with $3.11, $3.65 and $3.70 averages over those periods on a fixed priced basis. If speculators are right, those averages would fall in the months ahead.

Obviously, lower HSC prices would benefit gas consumers along the Houston Ship Channel and surrounding areas, but there would be another major benefactor: Mexico. The majority of gas shipped to Mexico through South Texas is priced via a formula that is directly tied to the HSC physical index, a practice that was established via the First-Hand Sales mechanism instituted by state oil and gas firm Petróleos Mexicanos years ago. If speculators are correct, Mexico could still see some relative pricing relief in the months ahead, even if announced efforts to boost domestic production fall drastically short.