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Heating demand faces more winter downside risk, Weather Service forecast shows

Highlights

33% to 40% chance for above-average Northeast temps

Northeast cash prices sharply lower vs. November 2019

Henry Hub forwards down 60 to 65 cents since October

New York — Mild US weather this month could endure through at least February, according a National Weather Service forecast, potentially perpetuating this winter's already disappointing heating-demand season.

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In December, January and February, the US Northeast, the South and much of the West face a 33% to 40% risk for above-average temperatures, an agency forecast published Nov. 19 showed. In states stretching from Arizona to Florida, the upside temperature risk is even higher – estimated at 50% to 60%.

In key heating markets across the US Midwest – including Ohio, Michigan, Indiana, Illinois and Wisconsin – there is an equal chance for above- or below-average temperatures this winter. In the northern Plains and the Pacific Northwest, both comparatively small heating-demand markets, the forecast shows a 33% to 40% risk for below-average temperatures from December to February.

Most concerning for the US gas industry is the risk for mild weather in the Northeast. Month to date, heating demand in the region has averaged just 8.6 Bcf/d – nearly 15% below its prior five-year average and 5 Bcf/d, or more than 35%, below last November's record-high level, data from S&P Global Platts Analytics shows.

Prices, storage

Another weak heating-demand season in the Northeast this winter could keep gas prices there lower for longer and perpetuate the region's current storage overhang. With the Northeast accounting for over one-third of the US winter heating market, weaker demand there could also become a drag on benchmark Henry Hub gas.

In Appalachia and even Northeast market areas, prices are already sharply lower compared to year-ago levels. At Dominion South, the cash market has averaged just 97 cents/MMBtu this month – down from an average $2.11 month-to-date last November. At Boston's Algonquin city-gates hub, prices have averaged $2.05/MMBtu this month, down from a cash-market average at $3.40 last November.

With Northeast storage currently estimated at 1.051 Tcf – just 23 Bcf below the region's record-high level recorded Nov. 11 – lower demand this season could keep inventories elevated through March, potentially perpetuating the pressure on Northeast gas prices through next summer.

Underperforming residential-commercial demand in the Northeast this month has also been a significant drag on the broader US market and likely contributed to the recent downturn in Henry Hub cash and forwards prices.

Month-to-date, US heating demand has averaged just 26.9 Bcf/d, nearly 30% below last November's month-to-date average of 38.3 Bcf/d, with the Northeast accounting for nearly half of this month's lost demand at the US level, Platts Analytics data shows.

Benchmark US gas prices have fallen sharply as a result of the downturn. At the Henry Hub, cash prices settled at $2.20/MMBtu on Nov. 19 and are down 85 cents since the start of the month, preliminary settlement data from S&P Global Platts showed.

The forward market has also responded with steady downward revisions to the winter price outlook. On Nov. 18, calendar-month prices for December, January and February settled at $2.71, $2.84 and $2.82/MMBtu – down about 60 to 65 cents since late October, S&P Global Platts' most recently published M2MS data shows.