Houston — Above-average temperatures across much of the continental US this winter could limit gas demand for heating, a forecast published Thursday by the US National Weather Service showed.
A series of outlooks extending from December to February predicted a 33% to 50% chance for warmer-than-normal weather in almost every US region, excluding portions of the Midwest and Plains.
The forecast poses downside risk for gas prices during the coldest months of winter when the market has historically rallied to annual highs, which topped $4.70/MMBtu at the Henry Hub last season.
After approaching $2.90/MMBtu earlier this month, the December-January-February forward strip price at the benchmark US gas hub has already witnessed a steady decline, settling Wednesday at an average $2.58/MMBtu, S&P Global Platts M2MS data shows.
The Weather Service forecast now poses additional downside for gas prices this winter, especially in December when key heating-demand states including Illinois, Indiana, Ohio, Pennsylvania and New Jersey face a 40% chance for warmer temperatures.
Through February, most of the Northeast is also facing a 33% chance for above-average temperatures, with an accompanying risk for heating demand. During a normal winter, the Northeast alone accounts for over 35% of US residential-commercial gas demand, according to S&P Global Platts Analytics.
Averaging 35.8 Bcf/d in first-half November, US residential-commercial gas demand posted its strongest start to the heating season in over five years, but now appears to be facing headwinds.
Over the past week, res-comm demand has averaged just 33.8 Bcf/d, trailing the prior five-year average by 2.7 Bcf/d or more than 7%, Platts Analytics data shows.
Through late November, current forecasts predict little upside for gas demand from homes and businesses, which is expected to average 34.1 Bcf/d through the Thanksgiving holiday.
Heading into December, warmer temperatures - particularly in the Northeast - could weigh heavily on the US heating sector.
Assuming regional temperatures across the Northeast trend just 2 degrees above average next month, heating demand could underperform by over 1 Bcf/d. Under normal weather conditions, res-comm demand in the Northeast would average about 14.3 Bcf/d this December, according to Platts Analytics.
While warmer temperatures might weigh on US gas demand and prices this winter, bearish year-on-year changes in production and storage levels pose more certain risks to the industry.
Since November 2018, US production has grown by about 5 Bcf/d to an average 92.2 Bcf/d this month. Over the same period, US domestic and export demand is up about 4.4 Bcf/d - effectively padding the US market with an additional 600 MMcf/d in supply compared to last November.
Adding to that supply length are US storage levels. Despite a surprisingly bullish storage withdrawal reported by the US Energy Information Administration Thursday, US inventory levels at 3.638 Tcf as of November 15, remain more than 500 Bcf or 16% above year-ago levels.
Looking ahead, warmer temperatures over the past week - which are expected to continue over the balance of November - are forecast to see gas storage withdrawals underperform the five-year average by a total 48 Bcf over the next two weeks, Platts Analytics data shows.
-- J. Robinson, firstname.lastname@example.org
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