U.S. natural gas futures eased about 1% on Thursday on forecasts for the weather to turn warmer than normal in late January after next week’s expected brutal freeze when demand is projected to reach record highs.
That price decline came ahead of a federal report expected to show last week’s storage withdrawal was bigger than usual for this time of year.
Analysts forecast U.S. utilities pulled 119 billion cubic feet (bcf) of gas out of storage during the week ended Jan. 5. That compares with a withdrawal of 23 bcf in the same week last year and a five-year (2019-2023) average decline of 89 bcf.
The futures market is trading for February. Looking ahead to February, analysts said the country should have enough production and gas in storage to meet at least normal weather conditions without boosting prices by much.
Starting this weekend, however, meteorologists forecast temperatures across most of the Lower 48 states will drop to well below normal levels, especially in the middle of the country. That frigid weather should boost gas demand to record highs over the weekend and has already put power and gas prices on track to hit their highest levels since December 2022.
With the cold already freezing the Pacific Northwest, next-day power prices at the Mid-Columbia hub soared by 741% to a 16-month high of $850 per megawatt hour (MWh) for Thursday.
That extreme cold has started to cause supplies to decline by freezing oil and gas wells, pipes and other equipment in the Rockies (Colorado and Wyoming) and Bakken shale (North Dakota and Montana).
Massive “freeze-offs” – the industry term for freezing wells – cut gas supplies for heating and power generation in February 2021 in Texas and other U.S. Central states and December 2022 in Appalachia, forcing some power grid operators and utilities to impose rotating outages because there was not enough electricity available with so many power plants shut due to a lack of fuel and other problems.
Front-month gas futures for February delivery on the New York Mercantile Exchange fell 3.1 cents, or 1.0%, to $3.008 per million British thermal units (mmBtu) at 9:40 a.m. EST (1440 GMT).
In other news, Chesapeake Energy said it would buy smaller rival Southwestern Energy in an all-stock transaction valued at $7.4 billion, a deal that would enable the second-largest U.S. gas producer to take the top spot from current leader EQT.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 states fell to 107.1 billion cubic feet per day (bcfd) so far in January, down from a monthly record of 108.5 bcfd in December.
On a daily basis, output was on track to drop by 3.7 bcfd over the past four days to a preliminary 10-week low of 104.5 bcfd on Thursday. Those output losses were small compared with losses of 19.6 bcfd during Winter Storm Elliott in 2022 and 20.4 bcfd during the February freeze in 2021.
Meteorologists projected U.S. weather would switch from mostly warmer than normal now to colder than normal from Jan. 13-21 before turning back to mostly warmer than normal from Jan. 22-26.
As heating demand soars, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would jump from 136.5 bcfd this week to 160.5 bcfd next week. Those forecasts were lower than LSEG’s outlook on Wednesday.
On a daily basis, total U.S. gas demand, including exports, was on track to reach 162.5 bcfd on Jan. 14, 167.6 bcfd on Jan. 15 and 175.4 bcfd on Jan. 16, according to LSEG.
Traders noted it would be unusual for gas use to hit a record on Jan. 15 since it is the Martin Luther King Day U.S. holiday when many businesses and government offices will be shut for a long weekend.
Those daily demand forecasts would tie and then top the current all-time high of 162.5 bcfd set on Dec. 23, 2022, during a winter storm known as Elliott, according to federal energy data from S&P Global Commodities Insights.
(Reporting by Scott DiSavino; Editing by Emelia Sithole-Matarise)