US stockpiles natural gas as warm winter temperatures cut demand

The US normally pulls natural gas from storage sites in the middle of winter, drawing on fuel carefully stockpiled ahead of the heating season.

In the first week of January, however, 11bn cubic feet of extra gas was put back underground instead.

The net injection — the first the US has recorded in the month of January — testifies to the warm winter across much of the northern hemisphere that has eased worries about a global energy crunch triggered by Russia’s war in Ukraine.

Although a sharp cold snap froze much of the US around Christmas, the number of gas-weighted heating degree days – a measure of energy demand – has been running 25 per cent lower than normal in January, according to the Energy Information Administration.

“US natural gas demand could be on track to hit record lows in January if unseasonably warm weather sticks around,” said Emily McClain, an analyst at Rystad Energy, a consultancy.

Lower consumption resulting from slacker demand for heating is reflected in wholesale prices, with benchmark US futures closing at $3.42 a million British thermal units on Friday, the lowest since June 2021.

Line chart of US Henry Hub natural gas, $ per mn British thermal units showing Warm weather cools natural gas prices

The drop in price is a sharp reversal from the summer, when it jumped above $10 to 14-year highs as US inventories were slow to rebuild during the so-called injection season, in part because of soaring demand for exports to Europe as Russia cut off supplies to the continent.

A group of New England governors was so worried about the possibility of winter shortages they asked the Biden administration to prepare emergency measures to allow them to bring in cargoes of liquefied natural gas from the US Gulf Coast, which is barred by federal maritime law.

The National Weather Service says it is likely the warmer than usual weather will persist through March for much of the eastern and southern parts of the country.

While winter temperatures are volatile, the number of heating degree days in the country has declined in recent years as the earth’s climate has warmed, according to the US Environmental Protection Agency.

Line chart of Number of HDDs, annual showing US heating degree days in decline

Even as demand has cooled, natural gas output from US shale fields has soared. Producers this month are expected to supply a record-high of more than 101bn cubic feet per day, according to government estimates. Analysts see further supply growth even if prices fall.

Matt Murphy, an analyst at Tudor, Pickering, Holt & Co, a Houston-based investment bank, said in a recent note to clients that “further supply growth and a slow start to winter” could drive prices below $3/mn Btu.

Further weighing on US gas prices has been the prolonged shutdown of a liquefied natural gas export plant in Texas since an explosion in June. The Freeport LNG plant normally consumes about 2 per cent of total US gas production, loading vessels bound for Europe, Asia and other foreign markets.

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