Winter could soon rear its ugly head, pushing prices up despite healthy storage - Rystad Energy’s North America Gas and LNG Market Note

Mild weather is keeping US gas markets in equilibrium, but winter nears and cold weather threatens to blanket markets as we get deeper into November.

Weekly storage injections rebounded from 52 Bcf to 107 Bcf in the last week of October, a 70% increase compared to the same week last year and nearly four times larger than in 2020 when withdraws of 36 Bcf were reported.

Although the US is officially out of injection season, we expect storage injections to continue in early November driven by lingering mild temperatures and lower power demand. An uptick in residential and commercial demand has yet to materialize, but with cold weather expected soon, gas demand increases are certainly on the horizon. In some regions, including the East, Midwest and South Central, above-normal temperatures have been widely reported but gas for power consumption has dropped 3.3% below 2021 monthly averages for November so far, suggesting marginal demand for cooling.

Weather forecasts indicate colder temperatures are on the way in the coming weeks. Nearly all regions, except for the Pacific, are forecast to experience below-normal temperatures. As such, we expect increases in demand from the residential and commercial sectors via heating to provide support for Lower 48 demand as we move into winter.

US consumption will rise as temperatures drop and heating demand surges, but increased LNG exports with the Freeport LNG facility coming back online will tighten the supply outlook significantly. Seasonal storage depletions will further squeeze the market balance. Current storage inventories, now 3.7% below the five-year average, are looking relatively healthy heading into winter withdrawal season. If a colder-than-average winter materializes, the storage trajectory will change significantly, leading to sizable withdrawals and pushing prices higher. The End of Season (summer) inventory is expected to crest just above 3.6 Tcf, sufficient for a normal winter, providing some comfort to near-term prices.

Dry gas production is off to a lagging start in November, ranging from 97-98 Bcfd. For the market to remain balanced heading into winter, short-term supply will need to ramp up. Heightened consumption through the remainder of the year, in addition to the risk of lagging supply, poses some upside risk to prices this winter.

Haynesville deliveries to Gulf Coast markets remain strong, while Northeast production has been lagging due to operational and supply chain issues, but the region is further hindered by takeaway capacity limitations. In contrast, the Permian is experiencing elevated associated gas production with flat oil production. The region faces a constrained environment given the underutilization of cross-border and legacy pipelines alongside pipeline maintenance – a strain on the region’s egress when combined.