ANALYSIS: US Rockies natural gas storage surplus could flip to deficit on record draw as arctic blast chills

New York — Although natural gas storage volumes in the US Rockies currently stand well above average, the arctic blast sweeping through the Lower 48 in the days ahead looks to prompt the region's largest weekly withdrawal on record, swiftly flipping the storage overhang to a deficit as hub prices soar to historic highs.

While demand in multiple regions breaks records, US production has fallen nearly 4.2 Bcf/d from last week's levels to 88.3 Bcf/d for Feb. 12, due to production freeze-offs mainly in Texas, Oklahoma and the Rockies region, according to S&P Global Platts Analytics.

RELATED: Historic cold overwhelms Western US gas markets, driving price to record highs

"A strong area of high pressure has an icy grip on much of the northern tier of the Lower 48 as an intrusion of Arctic air races south into the Southern Plains," according to the National Weather Service. "Sub-zero high temperatures are on tap in the northern Rockies and High Plains with some areas seeing morning lows both Feb. 12 and Feb. 13 between minus 20 and minus 30 degrees."

The significantly tighter markets in those regions have caused an intense competition for marginal supply. Cheyenne hub bid up to highs of $350/MMBtu during trading on Feb. 12. The hub has traded at an average value of a little more than $2/MMBtu over the past five years.

The competition for gas between Texas, Oklahoma and the Rockies highlights how tight the current US market has become this year. Even though production has started to rebound in 2021 from the shut-ins last spring and summer, regions with limited storage will need to compete for marginal supply on high-demand days resulting in large single-day price blowouts.

Rockies temperatures are forecast to fall as low as 6 degrees on Feb. 14 and average 14 degrees colder than 10-year norms between Feb. 12 and Feb. 18. Temperatures in the US Pacific Northwest are expected to drop 7 degrees for the same week.

Frigid temperatures in the Midwest have supported Rockies outflows into the Midwest at 1.1 Bcf/d month to date, but that will likely shrink as the demand differential between the two regions closes, according to Platts Analytics.

Also, upside from imports is similarly constrained by cold temperatures in Canada, suggesting the Rockies will likely rely heavily on volumes held in underground storage.

A maintenance is also limiting Canadian exports into the US Pacific and Rockies regions. On Feb. 7, Westcoast Transmission Pipeline reported an unplanned outage at Compressor Station #2, which was due to equipment failure at the motor control center that caused electrical damage. Enbridge anticipates repairs will take two weeks, with the potential for an additional four. The notice announced capacity at the downstream Station 4B would be limited to 1.66 Bcf/d.

Temperatures for the week ending Feb. 19 will likely be colder than they were when the EIA's Mountain region reported its largest withdrawal ever, suggesting a potentially record-breaking draw.

The largest weekly storage pull from the region measured 16 Bcf for the week ended Jan. 5, 2018. This occurred during an event meteorologists dubbed a "bomb cyclone." As the storm blasted its way across the US, it prompted freeze-offs and pipeline-related outages in Appalachia, Permian, Anadarko and the Bakken leading to a 3 Bcf/d domestic production drop. At that time, Cheyenne hub traded at more than $6/MMBtu for several days.