US power winter forwards trend lower due to higher natural gas inventories

Power forward prices are trending lower compared to a year ago as natural gas storage inventories are starting the winter season with an eight-year high, the US Energy Information Administration said on Dec. 2.

"The US writ large is entering the winter with its largest natural gas storage inventories since 2016, and as a result, we're expecting a slowdown in production in an effort to drive prices back up after historic lows in 2024," said Shayne Willette, S&P Global Commodity Insights senior research analyst. "Generators have capitalized on weak natural gas prices this year -- burning the most gas ever -- and we expect this trend to continue into the winter."

The weaker gas prices have pulled down power prices. In the West, SP15 on-peak January and February packages are trending about 32% lower and 37% lower, respectively, than their 2024 counterparts were a year ago, according to data from Platts, part of S&P Global Commodity Insights. Likewise, ERCOT North Hub on-peak January is trending 27% below its year-ago package, while on-peak February is 31% below.

PJM observers are looking to see where capacity prices clear in the December auction after the July auction cleared at record-high prices.

When it comes to winter weather, the three-month outlook indicates a greater chance for above-normal temperatures across the southern half of the county and into the northeast, with a greater probability for below-normal temperatures in the Pacific Northwest and northern Midwest, according to the National Weather Service's Climate Prediction Center.

Gas inventories

Working natural gas in storage in the Lower 48 states ended the natural gas injection season with 3,922 Bcf, according to the EIA. Inventories are currently 6% above the previous five-year average, despite less-than-average injections into storage throughout the entire injection season, which runs from April 1 through Oct. 31.

"Less natural gas than the five-year average was injected in nearly every week during the 2024 injection season, in part because starting inventories were relatively full," the EIA said in a Dec. 2 statement.

Net injections into natural gas storage during the injection season totaled 1,640 Bcf, 21% less than the five-year average, according to the EIA. Weekly injections ranged from a maximum of 96 Bcf in late May to 10 Bcf in mid-July.

Natural gas injections into storage for the weeks ending Oct. 25 and Nov. 1, the last two weeks of injection season, exceeded their five-year averages, further boosting the volume of natural gas in storage. The EIA forecast natural gas withdrawals during the 2024-25 heating season will total 1,957 Bcf and that inventories will be 6% above the 2020-24 average at the end of March 2025.

"As the surplus is depleted, we can expect gas prices to rebound and subsequently power prices," Willette said. "When and what pace the depletion will occur at largely depends on just how severe this winter is."