Northeast heat, early-season demand adds to region's gas inventory burden

An early-season heat wave forecast for the US Northeast next week is promising to lift gas-fired cooling demand, possibly slowing injections to gas storage in a region already strapped by depleted inventories.

From May 31 to June 3 cities across the US Northeast face a 60% to as much as 80% risk for above-average temperatures according a 6- to 10-day outlook from the US National Weather Service. Over the same period, forecasters anticipate high temperatures in Washington, Baltimore, Philadelphia and New York City to climb into the low to mid-90s Fahrenheit.

Already elevated power burns in the US Northeast are expected to spike over the period, hitting a high of 9.3 Bcf/d – a level seen only once so far this summer, data from S&P Global Commodity Insights shows.

In May, strong power burns in the US Northeast have helped to keep Appalachian gas production in tight supply and are a key contributing factor to the region's growing inventory deficit. Month to date, Northeast power burn has averaged about 7.5 Bcf/d, outpacing the corresponding 2021 average by about 660 MMcf/d and outstripping the three-year average by over 1.3 Bcf/d, S&P Global data shows.

Inventory

With Appalachian Basin gas production up just 250 MMcf/d over the past year, the annual gains in power burn demand has helped to keep injections to gas storage well below-average – a situation exacerbated by historically narrow cash- and summer-to-winter price spreads at upstream hubs like Eastern Gas South.

Month to date, injections to gas storage have averaged about 3.3 Bcf/d, or about 600 MMcf/d below the prior five-year average injection rate for the month. Over the same period, the Northeast region's inventory deficit has widened to about 85 Bcf below average, which compares with an inventory deficit of about 70 Bcf at the start of May, S&P Global data shows.

With Northeast inventories now estimated at just over 390 Bcf and about 165 days remaining for the injection season, injections to gas storage would need to average close to 3.7 Bcf/d over the balance of summer to reach typical stock levels at over 1 Tcf by early November. By comparison, over the past five years, injections to storage over that five and one-half month period only averaged about 3.1 Bcf/d.

Outlook

This summer, hot weather in the forecast for the US Northeast and narrow summer-winter spreads in the forward gas markets are promising to make the region's inventory deficit challenging to overcome.

During the peak-summer cooling months of June, July and August, states across the Northeast Atlantic Seaboard stretching from Maryland to Maine are forecast to see a 50%-60% chance for above average temperatures, according to a May 19 seasonal temperature outlook from the Weather Service.

With Northeast gas-fired power burns already expected to outpace previous summer averages this season – thanks to capacity changes and limits on fuel switching – the hotter weather forecast only adds to the bullish outlook for generator gas demand during the peak cooling months.

In the forward market, meanwhile, impossibly narrow price spreads from summer to winter promise to exacerbate the Northeast region's storage challenges. As of late May, the June-July-August forward average at Eastern Gas South is now trailing the December-January-February average by less than 5 cents/MMBtu, Platts M2MS forwards data shows.