Weather Service February forecast shows upside for gas demand, prices

New York — A National Weather Service forecast calling for colder temperatures across the US Midwest and Northeast next month could help to rescue winter gas demand from the doldrums this season.

In February, states stretching from the Dakotas to New England will see a 33% to 40% probability for below-average temperatures, the agency's month-ahead outlook published Thursday shows.

Above-average temperatures in February are forecast for much of the West stretching from California to Colorado and the Desert Southwest. South Texas, Florida and portions of the Gulf Coast are also expected to see warmer weather.

February's chilly temperatures, though, should hit states where it matters most.

The Midwest and the Northeast together account for roughly 60% of US residential-commercial heating demand, according to S&P Global Platts Analytics. Colder temperatures in the two regions could offer some balance to recent supply length and persistently low gas prices.

HEATING DEMAND

From November 1 to date, US heating demand has averaged 37.9 Bcf/d, trailing the five-year average by nearly 3%, or about 1.1 Bcf/d, Platts Analytics data shows.

Following record-cold temperatures and strong demand in first-half November, residential-commercial heating has been largely lackluster since. In fact, on the coldest day this season, demand briefly topped 53.9 Bcf/d – a figure that pales in comparison to last winter's single-day record at over 69.3 Bcf/d.

In February, though, temperatures even 1 to 2 degrees Fahrenheit colder than average in the Northeast could add roughly 1 Bcf/d in gas demand. In the Midwest, a similar temperature deviation could result in incremental demand of 700 to 800 MMcf/d, according to a weather-sensitivity analysis.

Under normal weather conditions, heating demand in February would average 16 Bcf/d in the Northeast, 11.9 Bcf/d in the Midwest and 46.1 Bcf/d across the entire US, Platts Analytics data shows.

SUPPLY

A slightly more bullish outlook for seasonal gas demand is welcome relief to a US market that's been snowed under recently by strong production and persistently high storage inventories.

Over the past 30 days, US output has averaged over 92.2 Bcf/d, which is up nearly 4%, or about 3.3 Bcf/d, in just the past six months. The flood of additional supply has kept the market well supplied in recent months and has weighed on gas inventories this winter.

Through the week ended January 10, gas in underground storage stood at 3.039 Tcf – a 149 Bcf surplus to the five-year average and nearly 500 Bcf more than inventory levels at this time last year.

PRICES

Gas prices in the US market have continued to hover near four-year lows this winter, recently experimenting with levels below $2/MMBtu.

With US production expected to surpass 93 Bcf/d by this summer and inventory levels forecast to end the season at a multiyear high, the market outlook for 2020 has remained largely depressed.

At market close Wednesday, balance-2020 forwards prices at the US benchmark Henry Hub settled at just $2.30/MMBtu, S&P Global Platts M2MS data shows.