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National Weather Service forecast predicts bearish outcome for winter heating

Highlights

33% to 50% risk for above-average temperatures

Res-comm to fall 2.2 Bcf/d or more compared to last winter

Denver — Temperatures across much of the continental US will trend above average this winter, potentially limiting gas demand for heating, a forecast published Thursday by the US National Weather Service showed.

In a series of outlooks extending from November to February, the agency predicted a 33% to 50% risk for warmer-than-normal weather in almost every US region, excluding portions of the upper Midwest and Plains.

Warmer temperatures, particularly in the Northeast, would likely weigh on gas demand this season, given that the region alone typically accounts for over 35% of US residential-commercial gas consumption during a normal winter.

Even assuming normal weather prevails, US heating demand is already expected to underperform this year compared to last, according to a recent forecast published by S&P Global Platts Analytics.

From November to March, normal winter temperatures would prompt gas demand from homes and businesses to average 39.9 Bcf/d, or about 2.2 Bcf/d below last year's average when colder-than-normal weather gripped the Midwest and Northeast, most notably in November.

This winter, an upside temperature deviation of 2 degrees Fahrenheit in the Northeast could lower that US heating demand figure by more than 1 Bcf/d. Even 1 degree warmer would cut demand by about 900 MMcf/d, according to a weather-demand sensitivity analysis from Platts Analytics.

PRICES

Irrespective of the Weather Service's bearish temperature forecast, futures and forwards markets already appear to be anticipating an oversupplied US market this winter.

So far this month, the November-to-March forward price average at the Henry Hub has traded below $2.50/MMBtu. Over the same five-month period last winter, the Henry Hub cash market averaged nearly $3.35/MMBtu, S&P Global Platts data shows.

The anticipation of surplus winter gas supply is pulling prices even lower at some regional hubs.

At Midwest locations like Chicago city-gates, Dawn Ontario and Mich Con city-gate -- where an influx of Appalachian gas this year has lifted storage levels to well above average -- calendar-month prices for December in particular are notably lower, down as much as $1.45/MMBtu compared with last year's cash-market average.

SUPPLY

On Thursday, the US Energy Information Administration reported another bearish 104 Bcf build to gas storage, lifting the total US inventory to 3.519 Tcf -- the first time during this injection season that storage levels stand at a surplus to the five-year average.

Over the course of this injection season, the US gas industry has injected over 2.4 Tcf into storage, which is already the largest seasonal build since 2015, EIA data shows. With more substantial injections expected to continue through October, aggregate inventories could approach 3.7 Tcf before the withdrawal season begins.

At the heart of the US market's growing surplus is strong and growing US production, which has outpaced the recent growth in domestic and even export demand.

In October, US output is averaging its highest on record at nearly 91 Bcf/d. Just since January, US production has grown by 4.7 Bcf/d or more than 5%, Platts Analytics data shows.

-- J. Robinson, jrobinson@spglobal.com

-- Edited by Rocco Canonica, newsdesk@spglobal.com