New York — Despite February's deep freeze drastically reducing Midwest gas storage volumes, mild weather in March looks to flip the deficit back in line with historical norms as supply grows and regional prices retreat.
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Storage withdrawals could decline further this month amid weaker demand, limiting the upside risk on regional prices going into the summer. Storage withdrawals in the Midwest have dipped to average 3.3 Bcf/d in March, 4 Bcf/d below the February average, according to S&P Global Platts Analytics. This has pushed inventories to 397 Bcf, down by 63 Bcf year over year.
February's extreme cold had pushed inventories as low as 80 Bcf below year-ago levels as the region hit record-high levels of demand. The winter storm also pushed up demand to record levels in surrounding regions as well, lowering available supply to send to the Midwest. At the same time, production in various US shale plays throughout the US dipped dramatically due to freeze-offs.
March demand has averaged 570 MMcf/d lower year on year as of March 8, already limiting withdrawals. Midwest demand is projected to drop even further, 2.7 Bcf/d year over year to 13.3 Bcf/d, by March 22, according to Platts Analytics.
At the same time, lower demand in neighboring regions will allow more gas to flow to the Midwest while production across US shale plays quickly rebounded following the February freeze-offs.
Lower demand in the US Northeast is also expected to decline, likely strengthening Northeast inflows from the 6.3 Bcf/d they have averaged so far this month. The 14-day outlook shows Northeast temperatures warming significantly, averaging over 48 degrees Fahrenheit, 7 degrees above normal temperatures. As a result, regional demand is slated to slide over the next two weeks to average 21 Bcf/d, a decrease of about 10 Bcf/d from the prior 30-day average. This will pose a risk of softer pricing across the region and lead to higher outflows, particularly to the Midwest region.
This should push Midwest storage withdrawals even lower and tighten the year-on-year inventory losses. While Platts Analytics' latest forecast calls for Midwest storage to enter the summer injection season 141 Bcf lower year over year, the most recent weather-driven demand drop suggests it could be much closer to year ago levels than previously anticipated.
Midwest region storage volumes are 18% below last year and 8% below the five-year average, according to the US Energy Information Administration. For the week ended March 5, Platts Analytics forecast a 25 Bcf draw in the Midwest region, which would measure 9 Bcf lower than the five-year average. Early forecasts for the weeks ending March 12 and March 19 point to even lower regional draws, further erasing the nascent deficit right before the injection season begins in April.
The quick shift in outlook for Midwest storage has prompted lower regional prices. For example, on Feb. 24, Chicago city-gates prompt month contract held a 3-cent premium to the benchmark Henry Hub prompt month. It dipped to a 7-cent discount as of March 8.