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ANALYSIS: US Northeast gas demand, spot prices surge as winter's first Nor'easter approaches

Highlights

Algonquin city-gates trades into upper $7s/MMBtu

Heating demand to hit seasonal high at 19.1 Bcf/d

Mild weather forecast to return through January

New York — Natural gas prices in the US Northeast are up sharply this week as the region's first major winter storm of the season approaches, bringing freezing temperatures and a corresponding spike in heating demand.

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At the Boston-area Algonquin city-gates hub, cash prices are up nearly $5 since the start of this week, rising to $7.56/MMBtu in Dec. 15 trading. At Transco Zone 6 New York, spot prices have nearly doubled in the past two trading days to $4.24/MMBtu, data from the Intercontinental Exchange showed.

At hubs across the Northeast, cash prices are now at their highest since last winter and could strengthen further in the days ahead as freezing temperatures and heavy precipitation begin moving into the region Dec. 16. According to the National Weather Service, states stretching from North Carolina to Massachusetts will be impacted as the approaching storm brings freezing rain, sleet and snowfall that could total as much as 2 feet in isolated areas.

On Dec. 15, the population-weighted temperature in the Northeast plunged to 33 degrees Fahrenheit. From Dec. 16 to Dec. 18, weighted-average temperatures are forecast to continue falling to a low of 28 degrees, leading a spike in heating demand to its highest since last winter, a forecast from S&P Global Platts Analytics shows.

Heating demand

On Dec. 15, residential-commercial gas demand was estimated at 17.7 Bcf/d. Over the next several days, analytics forecasts show regional consumption continuing to rise, hitting a high of 19.1 Bcf/d on Dec. 18.

The surge in gas demand and market-area prices follow an exceptionally mild start to this winter's heating season.

In November, population-weighted temperatures climbed into the lows 60s F for nearly an entire week and have remained above average at 40 degrees this month to date. Since the start of November, residential-commercial gas demand in the Northeast has lagged as a result, averaging just 10.3 Bcf/d, or its lowest since 2015, Platts Analytics data shows.

Record-low prices

Mild weather has been at least partly to blame for this season's low gas prices. In November, the cash market at Algonquin city-gates dipped to its lowest on record at 38 cents/MMBtu. At Transco Zone 6 New York, spot prices hit their own record low last month, settling at just 28 cents/MMBtu, S&P Global Platts data shows.

In addition to mild weather, elevated storage is also to blame for this season's market woes.

On November 10, Northeast inventory levels climbed to their highest in nearly a decade at over 1.06 Tcf, according to data compiled by Platts Analytics. As mild weather continues to dog the regional gas market, storage levels have remained elevated this month. On Dec. 15, regional inventory was estimated at 953 Bcf, or its highest mid-December level since 2015.

Outlook

According to Platts Analytics, Northeast temperatures could begin rising by this weekend and will remain above normal through the end of December, putting downward pressure on regional heating demand – and potentially – gas prices.

For the month ahead, recent forecasts are predicting more mild weather in the Northeast. In states stretching from Maryland to Maine, there is a 33% to 40% risk for above-average temperatures in January, a recent 30-day forecast from the National Weather Service shows.

The forward market already appears to be bracing for that outcome. On Dec. 14, January calendar-month gas prices at Algonquin city-gates settled at $5.54/MMBtu – down from over $7 in October. At Transco Zone 6 New York, January prices most recently settled at $4.07/MMBtu, down more than $2.50 over the same period, S&P Global Platts' M2MS forwards data shows.