US gas markets diverge on abnormal January-February weather

US cash gas prices saw record-high and historically low averages throughout the country during the first two months of 2023, as abnormal temperatures in various regions brought overall US gas demand down from the corresponding period of 2022.

US temperatures averaged 42.8 degrees Fahrenheit between January and February, up from 39 F in the prior year and the third-highest average in the last 17 years, only below 43.1 F in 2012 and 43.7 F in 2017, according to S&P Global Commodity Insights data.

Likely due to the warmer weather, total US gas demand averaged a five-year low of 110.65 Bcf/d in the two-month period, down from 120.42 Bcf/d in the same year-ago period, while total supply averaged a record-high 97.66 Bcf/d, which could have added pressure to gas prices.

Prices spike in the West from record-low temperatures

Temperatures in the Rockies averaged 31.3 F during the first two months of 2023, down from 34.2 F in the previous year and the lowest on record, according to S&P Global data that goes back to 2005. Similarly, temperatures in the Southwest fell to a record-low 50.2 F from 55.1 F in the corresponding period of 2022.

As a result, average Southwest gas demand jumped to a record-high 10.58 Bcf/d from 9.11 Bcf/d the same time a year ago.

Due to higher gas demand in the region, Pacific storage withdrawals have nearly depleted inventories. According to a March 2 report from the US Energy Information Administration, Pacific inventories are now at 99 Bcf, down from 166 Bcf a year earlier and the second-lowest level on record, only above 96 Bcf in the week ended March 15, 2019.

In the spot market, Northwest Wyoming pool cash gas prices averaged $11.42/MMBtu over the first two months of 2023, up from $4.66/MMBtu in the same period a year earlier, while the PG&E city-gate averaged $12.39/MMBtu, up from $5.10/MMBtu in the prior year. Both locations were at record highs since Platts launched the assessments in March 2000 and April 1998, respectively.

Similarly, SoCal Gas climbed to a 22-year high of $12.26/MMBtu, up from $4.93/MMBtu in the previous year and the highest January-February average since $15.70/MMBtu in 2001.

Warmer Northeast weather sinks prices, demand

In contrast, average temperatures in the Northeast rose to a record-high 40.5 F for the two-month period from 32.6 F in the same period in 2022. This likely resulted in demand falling by 4.63 Bcf/d on the year to 25.62 Bcf/d, which was the second-lowest average in the last 10 years, only above 22.57 Bcf/d in 2017.

Despite lower demand, total Northeast supply rose to a record-high 34.46 Bcf/d from 33.86 Bcf/d produced in the first two months of 2022.

The Algonquin city-gates averaged $6.77/MMBtu between January and February, down from $16.61/MMBtu in the same period of 2022, while Transco Zone 6 NY fell by $4.86 on the year to $3.48/MMBtu. In the Appalachia region, Columbia Gas Transmission fell to $2.38/MMBtu from $4.10/MMBtu the previous year and the third-lowest average in the last 21 years, only below $1.99/MMBtu in 2016 and $1.70/MMBtu in 2020.

Midwest demand falls to a five-year low

Similar to the Northeast, temperatures in the Midcontinent Market averaged 32.6 F in the first two months of 2023, up from 22.8 F in the previous year and the second-highest average on record, only below 32.9 F in 2017, according to S&P Global data.

Midcon Market demand slid to a five-year low of 18.63 Bcf/d from 21.65 Bcf/d a year earlier.

Chicago city-gates averaged $2.77/MMBtu in the two-month period, down from $4.36/MMBtu in the previous year, while NGPL-Midcontinent fell $1.72 on the year to average $2.50/MMBtu.

Texas supply climbs to record high

The South was also warmer, as Texas climbed to a six-year high of 52.7 F between January and February from 47.3 F in 2022, while Southeast temperatures rose to 55.9 F from 51.5 F in the previous year and the second-highest level on record, only below 57.3 F in 2017.

Despite mild weather to start the year, Southeast demand ticked down to 29.65 Bcf/d from 30.11 Bcf/d, as LNG feedgas demand climbed more than 1.14 Bcf/d to average a record-high 9.16 Bcf/d. Total Southeast supply averaged a 10-year high of 14.15 Bcf/d, up from 13.81 Bcf/d a year earlier, adding more price pressure.

The benchmark Henry Hub in Louisiana averaged $2.83/MMBtu in the two-month period, down from $4.48/MMBtu the previous year and the fourth-lowest average in the last 21 years.

In Texas, demand fell 2.49 Bcf/d from the previous year to an average of 14.07 Bcf/d, while supply climbed 1.08 Bcf/d to a record 25.74 Bcf/d.

Houston Ship Channel cash gas prices averaged $2.36/MMBtu, down from $4.319/MMBtu in the same period of 2022, while Waha fell to $1.74/MMBtu from $4.13/MMBtu, likely from associated gas production and limited pipeline takeaway capacity in the Permian Basin. Both locations recorded their third-lowest average for the two-month period since 2000.