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Winter weather set to narrow US gas storage surplus as NYMEX nears $3

Highlights

Heating demand headed for seasonal high

Prompt gas futures up 42 cents on year

  • Author
  • Jeremy Beaman    J Robinson
  • Editor
  • Benjamin Morse
  • Commodity
  • Natural Gas Upstream

The US gas storage surplus could narrow by triple digits over the next several weeks as frigid weather fuels a major spike in domestic heating demand, resetting the market outlook for the balance of winter.

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Current forecasts call for below-normal temperatures to sweep most of the country through at least the third week of January, including in the Midwest, where dozens of cities experienced their warmest Christmas holidays on record. Over the coming weekend, the region could see temperatures fall as much as 20 degrees below normal, while temperatures in the Rockies and Southeast are also forecast to trail regional averages, according to data from S&P Global Commodity Insights.

Overall, nearly the entire Lower 48 can expect to see below-normal temperatures Jan. 13-21, with Midwest states given the highest probability in the National Weather Service's latest outlooks.

The cold spell is expected to send gas-fired heating demand climbing beyond 50 Bcf/d for the first time of the 2023-2024 season and to inflate the size of storage withdrawals over the next few weeks, having already started with the week ended Jan. 5. S&P Global's latest supply-demand model estimates the US gas market saw a larger-than-average 111-Bcf withdrawal from storage in the most recent week.

For the current week ending Jan. 12, S&P Global analysts are expecting a 163-Bcf withdrawal from storage to be followed up by a 229-Bcf draw in the week to Jan. 19, both of which would also be outsized compared with the five-year average and year-ago withdrawals.

By the end of that three-week stretch, inventory would fall from 3.476 Tcf to 2.973 Tcf, with the surplus to the five-year average dropping from 13% to end 2023 to about 10% by mid-January.

Reversing the trend

From the gas market's perspective, weather conditions through the end of 2023 were underwhelming on the whole, limiting gas-fired heating demand and contributing to a suite of mostly smaller-than-average withdrawals from gas storage.

As of Dec. 29, Lower 48 gas storage had fallen to 3.476 Tcf on a 14-Bcf withdrawal, while the surplus to the five-year average rose to 399 Bcf, or 13% above average, according to data from the US Energy Information Administration.

The surplus to year-ago inventory levels, which saw steep withdrawals in late December 2022 because of Winter Storm Elliott, rose to 553 Bcf in the same week, or nearly 19% above its corresponding-week level last winter.

"It's just a massive number that if we get any kind of warming, if the forecast were to shift then, I mean it could be -- it could get ugly rather quickly," Bob Yawger, an analyst with Mizuho Group, said in an interview, referring to the storage surplus and the potentially bearish market impact that could result from warmer-than-expected weather.

Yawger said he suspects the final full week of December marked the peak of the storage surplus for this season, predicting also that the EIA will report a 100-plus Bcf withdrawal for the week ended Jan. 5.

Demand data indicate gas market fundamentals tightened into the new year, supporting a larger week-on-week withdrawal than the 14 Bcf reported for the final week of 2023.

In December, US heating demand averaged about 34.4 Bcf/d but rose to start January as winter weather made its way east. In the week to Jan. 5, heating demand averaged about 42.2 Bcf/d, climbing nearly 32% from the prior week's roughly 32 Bcf/d, S&P Global data showed.

Over the coming weeks, heating demand is forecast to continue rising to average above 46 Bcf/d Jan. 9-22.

The demand outlook is yielding support to NYMEX prompt-month gas futures, which are up 42 cents since 2024 trading kicked off on Jan. 2. The February contract gained 8 cents Jan. 8 to settle at $2.98/MMBtu, data from CME Group showed.