Milder US weather to limit upside for gas-fired heating demand this winter

New York — A winter weather forecast that the National Weather Service published Oct. 15 is calling for above-average temperatures across the US Northeast along with much of the South and West from December to February, signaling lower-than-anticipated upside for gas-fired heating demand.

According to the three-month outlook, states stretching Maine to Florida and California to New York will face a 33% to 60% chance for above-average temperatures during this winter's coldest months — potentially dampening gas demand across most of the continental US.

Much of the Upper Midwest, including Ohio, Indiana, Michigan, Illinois, Wisconsin, and Minnesota, is excluded from the forecast, making it more likely that the nation's second-largest heating market behind the Northeast will see winter temperatures closer to the 10-year average.

The forecast also calls for a 33% to 40% chance for below-average temperatures in states across the Northern Plains and into the Pacific Northwest – two regions that are unlikely to have much impact on the bottom line for US heating demand this season.

Following historically mild weather during winter 2019-2020, S&P Global Platts Analytics is forecasting a return to colder weather this season, with accompanying increases in residential-commercial gas demand. But a weather service outlook calling for above-average temperatures in the US Northeast could mean minimal upside for heating demand this winter compared with the last.

Heating demand

For the coldest winter months from December to February, Platts Analytics forecasts currently show res-comm demand averaging 46.5 Bcf/d – about 6% above the corresponding year-ago of 43.9 Bcf/d.

Compared with the prior five-year average for US heating demand, also estimated at 43.9 Bcf/d from December to February, the bottom-line gain in demand this winter would be nearly identical.

Assuming temperatures across the Northeast trend just 2 degrees above average this winter, regional heating demand could underperform by more than 1 Bcf/d, dragging the cumulative US figure lower.

Market outlook

The weather service winter outlook and other seasonal forecasts have often loomed large over forward-market sentiment ahead of the heating season. This year, though — perhaps more than any other in recent history — seasonal weather predictions don't appear to have moved the needle much.

Recent market bullishness also appears to have defied a growing storage surplus — another factor that could weigh on the US supply-demand balance this winter. On Oct. 15, total US stocks were estimated at 3.877 Tcf for the week ended Oct. 9, a more than 350 Bcf surplus to the five-year average, Energy Information Administration data showed.

Despite bearish market signals, calendar-month prices for this winter's peak-demand months have remained well above $3/MMBtu amid growing market certainty that continued production weakness will outweigh any potential gains in supply. With an estimated 7 Bcf/d cut in US output since last winter, supply deliverability could be a significant issue this heating season, limiting the availability of gas when and where it is needed most.

On Oct.15, calendar-month prices for December, January, and February were assessed at $3.19/MMBtu, $3.33/MMBtu, and $3.29/MMBtu, respectively — just 10-15 cents below annual highs recorded in late September, Platts' most recently published M2MS data showed.