US Midwest gas storage takes hit as long-awaited winter weather arrives in the West

Wintry weather and strong gas demand across the US Midwest are likely to continue over the next week, with a drop in supply from the Rockies and Western Canada increasing the region's reliance on storage.

Since the start of January, population-weighted temperatures in the Midwest have averaged a chilly 16.7 F or more than 10 degrees below normal, data from S&P Global Platts Analytics shows.

Over the same period, residential-commercial gas demand has surged, nearly doubling since late December to over 18 Bcf/d on Jan. 7. Current forecasts show the trend continuing over the next week keeping total Midwest gas demand near the top of its five-year average range at about 22.2 Bcf/d.

Strong demand has fueled an uptick in Chicago city-gate spot gas prices which jumped to nearly $4/MMBtu in Jan. 7 trading – up from about $3.70 over the past two weeks, data from Intercontinental Exchange and S&P Global Platts showed.

Despite the uptick in gas prices, the Midwest has suffered a decline in inbound gas transmissions from the Rockies and Western Canada recently as both regions grapple with their own wintry weather.

Since the start of January, inflows from the Rockies have tumbled to an average 115 MMcf/d, down from levels over 500 MMcf/d during the final two weeks of December. The drop in transmissions from Western Canada has been more recent, with flows falling to about 2.7 Bcf/d in recent days, off from levels around 3.2 Bcf/d in the two weeks prior, Platts Analytics data shows.

Storage

While an uptick in transmissions from other regions like the Northeast and the Midwest has helped to compensate for the deficit, the Midwest has also increased its reliance on gas storage, fueling a steep drop in inventory levels since the start of January.

Over the past week, inventory levels in the Midwest have plunged, falling about 60 Bcf to an estimated 765 Bcf as of Jan. 7, current estimates show. The precipitous decline has narrowed an emerging storage surplus in the region, with inventories now about 25 Bcf above the prior five-year average, compared with a nearly 40 Bcf surplus at the start of January.

The colder weather has spurred on the forward gas market at the Chicago city-gate. After January calendar-month prices dipped the low-$4s/MMBtu late last month, Chicago's balance-of-month gas contract has recent spiked to nearly $5, signaling growing anticipation of tighter supply ahead.