Wintry weather promises to cut US South Central storage surplus, push gas prices higher

A nascent storage surplus in the US South Central region could narrow sharply by mid-November as colder, blustery weather potentially fuels a drawdown from inventory, driving winter gas prices higher.

In the week ended Nov. 4, utilities and traders across the region added 33 Bcf to South Central stocks expanding a single-digit storage surplus to 27 Bcf. Sample storage activity in the week ended Nov. 11 suggests that the US Energy Information Administration is likely to reveal another outsized injection to South Central storage in the latest reporting week.

By mid-November, though, colder weather and stronger heating demand across the region could fuel a potentially sizeable first winter drawdown from South Central storage.

From Nov. 12-18, the population-weighted temperature across Texas is forecast to fall to an average 45 degrees Fahrenheit -- dropping more than 22 degrees from the prior week. In the US Southeast, temperatures are expected to cool about 12 degrees to average 55 F over the same seven-day period.

By mid-November, gas demand for power and heating in Texas and the Southeast should rise to about 3.3 Bcf/d over its current level, tightening the South Central supply-demand balance. According to a recent analysis from S&P Global Commodity Insights, though, winter-like weather expected in the Midwest and the Northeast could have the largest impact on the South Central market balance as shippers in both locations keep more supply in-region to meet local demand.

Lower-48 chill

According to the National Weather Service's latest pair of short-term temperature outlooks, a cold high-pressure air mass should descend over the central US by mid-November hitting states stretching from the Rockies to the Appalachians and as far south as Texas, dropping temperatures well-below average.

From Nov. 16-20, temperatures in the Upper Midwest, the Plains and the central South are all but certain to trend below average with slightly lower probabilities extending through Nov. 24, according to the Weather Service forecast.

As temperatures across the Midwest plummet into the 20s and 30s F, higher prices and stronger demand there are likely to drive a spike in outbound flows from the Southeast to the Midwest.

After flowing net southbound this summer, flows between the Midwest and Southeast reversed direction in October amid an uptick in heating demand across the central US. In November, Southeast-to-Midwest flows have averaged just over 740 MMcf/d but are likely to move higher in days ahead.

Although the US Northeast isn't expected to take the brunt of the coldest weather, population-weighted temperatures there are still forecast to fall to the upper 30s F by mid-November, driving gas demand higher and potentially cutting pipeline deliveries to the Southeast.

Prices

In Nov. 10 trading, prices for daily gas flows through Nov. 14 settled sharply higher across East Texas and the Southeast as the region braced for an uptick in demand. At key locations including Henry Hub, Tennessee Zone 1, Transco Zone 3 and Houston Ship Channel, prices were up about $1- $1.50/MMBtu. While East Texas gas prices remained in the mid-$3s, gas prices in the Southeast were trading above $4 across the board with some locations climbing as high as the $4.70s/MMBtu, data from Platts, a part of S&P Global Commodity Insights, showed.

Forward gas prices for December and January were also pulled higher by the movement in cash markets. At the benchmark Henry Hub, both winter contracts gained nearly 40 cents to settle at $6.24 and $6.61/MMBtu, respectively. At other Southeast hubs, the gains were similar, pushing prices at some locations to nearly $7, Platts data showed.