US natural gas storage looks to record largest weekly draw of heating season

US natural gas storage volumes likely registered the largest drop of the season for the week ended Jan. 21, flipping the surplus to the five-year average to a deficit, as an even larger draw is expected for the week in progress due to colder temperatures and production declines.

The US Energy Information Administration is expected to report a 214 Bcf withdrawal for the week ended Jan. 21, according to a survey of analysts by S&P Global Platts. Responses to the survey ranged from a 200-227 Bcf withdrawal. The EIA plans to release its weekly storage report on Jan. 27 at 10:30 am ET.

A 214 Bcf withdrawal would be more than the five-year average draw of 161 Bcf and the 137 Bcf pull reported during the corresponding week in 2021. It would reduce stocks to 2.596 Tcf. The deficit to last year would expand to 303 Bcf. The surplus to the five-year average would flip to a 20 Bcf deficit.

Last week is expected to have seen the strongest storage withdrawal activity of the winter season yet, though that may be short-lived as fundamentals point to continued tightening among supply-demand balances during the week in progress. This sets the stage for an even more robust storage withdrawal to be reported next Thursday for the week ended Jan. 28, according to S&P Global Platts Analytics. However, there is notable risk around the South Central region where a massive 82 Bcf draw is expected.

The NYMEX Henry Hub February contract was static at $4.03/MMBtu during the trade day on Jan. 25 as US supply and demand fundamentals tighten further on higher heating demand and production declines. A forecast by Platts Analytics calls for a draw of 263 Bcf for the week ending Jan. 28. Subsequently, Henry Hub spot price has climbed well above the $4/MMBtu over the past week.

Since the end of December, US production has declined roughly 4 Bcf/d, dropping as low as 90.75 Bcf/d on Jan. 20, according to Platts Analytics. While a slowdown is typical to start the year, it is apparent much of the recent decline can be attributed to freeze-offs. A freeze-off occurs when water vapor or liquids within a gathering line freeze. While the temperature at which this occurs varies depending on the region, it is a possibility when temperatures drop below 32 degrees Fahrenheit.

While a fair amount of the recent decline can be attributed to seasonality, as operators reset and recoup from the year-end sprint, much of the drop can be explained by freezing temperatures and a lack of access to pad sites across the US. Meanwhile, US residential and commercial demand has held above the previous five-year average for most of January. This coupled with record LNG export demand has sent Henry Hub spot prices soaring. HH prices have averaged $4.30/MMBtu for the past week.