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Gas utilities using storage less, pipelines more heading into winter, AGA says

Record U.S. natural gas production from the shale revolution is allowing gas utilities to rely on volumes coming directly off a pipeline as opposed to pre-purchasing gas and paying for storage to meet winter demand, analysts with the gas utilities' trade group said in presenting their 2018 winter heating outlook.

Winter 2018-2019 will be slightly warmer than normal but slightly colder than the previous winter in the Lower 48, the American Gas Association's Richard Meyer said Oct. 18 in a Washington, D.C., briefing, citing the National Weather Service. The Northeast, a region of high winter gas demand, will have a cooler winter, in line with multiyear averages, said Meyer, AGA's managing director of energy analysis.

"Gas in storage is well below average, 17% [below]," Meyer said, but the seeming shortfall has yet to spook the commodity markets, and prices have stayed stable around $3/MMBtu because of record U.S. gas production.

The U.S. Energy Information Administration predicted that the benchmark Henry Hub price will be $3.32/MMBtu this winter, AGA Senior Energy Analyst Brendan O'Brien said, 12% higher than last winter but 30% off 2014's $4.53/MMBtu price.

"The market is priced to suggest that it's very well supplied," Meyer said. "In prior years, this would have been a very bullish indicator, the lower-than-average inventories. We have not seen an increase in prices this year."

"I think we're seeing a shift in the overall supply mix," Meyer said. "Supplies in general are robust. It seems to me that we're seeing that supply mix shift maybe away from inventories to flowing gas. Maybe the market is shifting in terms of how it meets peak supply in the winter."

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Meyer and O'Brien said gas utilities in high-winter-demand areas such as the Midwest and the Northeast are still using storage as before to create stockpiles, but salt cavern storage in the South is cycling throughout the injection season. Previously, Southern storage behaved like much of the rest of the country: injecting in the spring and summer, drawing down in winter. Now gas moves in and out of storage regardless of the season, AGA Vice President for Policy Analysis Chris McGill said.

Consumers are likely to have lower bills in the coming winter, a survey of AGA's more than 200 member companies said. Three-quarters of the companies surveyed said they expect to bill customers the same amount or less this winter. Only 30% of a consumer's gas utility bill is the commodity cost of natural gas, with rest attributed to storage, distribution, and corporate costs and profit, O'Brien said.

Gas demand peaked on Jan. 1, when 147 Bcf was called for in a day, equivalent to the daily generation capacity of the U.S. electric power industry, Meyer said. More than half of demand that day, 79 Bcf, was from residential and commercial customers, with gas-fired power plants consuming 21%. Exports to Mexico and via LNG vessels accounted of 5% of Jan. 1's peak consumption, AGA said.