Natural gas hits 2-1/2 year high on deteriorating US weather conditions

Natural gas surged to the highest level in 2-1/2 years as short-term weather forecasts called for much below-normal temperatures across most of the densely-populated US areas. Freezing temperatures boost natural gas demand, as Americans crank up the heating.

On the New York Mercantile Exchange, natural gas for delivery in February rose by 2.25% to hit a session high at $4.795 per million British thermal units by 10:17 GMT. This was also the highest level since June 13th 2011, when prices touched $4.811 per mBtu. Yesterday prices soared by 5.2%, capping the biggest daily increase since July 18th, when prices surged by 5.36%.

Last week, the energy source surged by 5.4%, and has headed for an 11.5% advance so far this week. Prices settled last year 26% higher, the best performance since 2005 and second straight annual advance

Freezing short-term weather outlook

NatGasWeather.com reported on January 23rd that numerous cold outbreaks will continue to sweep across the US, with the latest one being more effective in pushing into the central US. Today, freezing temperatures will continue to push into the Southern Plains and the Southeast. According to the website, high natural gas and heating demand can be expected in the coming days as much of the US will experience below normal temperatures.

During the coming weekend, a much colder Arctic air outbreak may impact the eastern and central US, with temperatures falling again well below zero over the Midwest and Northeast and with single digits for the Mid-Atlantic. Late this weekend and early next week, freezing conditions can be expected along the Gulf Coast and again into Northern Florida, where overnight lows will drop into the teens and 20s. By Wednesday next week , the worst of the series of cold outbreaks should be over, when the cold air mass retreats back to Canada.

According to AccuWeather.com, temperatures in Detroit on January 26th may bottom at 2 degrees Fahrenheit, 18 beneath average, while the low in New York may hit 14 degrees, below the average of 27 degrees. Temperatures in Chicago are expected to hit -4 degrees Fahrenheit, 22 below normal.

When cold weather is expected, natural gas surges as increased electricity demand to power air-conditioning calls for more supply of the fuel, which is used for a quarter of U.S. electricity generation. Above-average readings in the winter season have the opposite effect. Consumption usually picks up from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand and 49% of U.S. households use the energy source for heating.

Extended forecast

The long-term weather outlook pointed to a period of relatively calm conditions across much of the US. NatGasWeather.com’s forecast for the week ended February 6th called for a big pattern change to take place during the first week of February, as a much more active jet stream will attempt to bring Pacific storms to the West coast. The latter will limit the amount of very cold air that is able to push out of the northern US and will thus ease natural gas demand, by limiting the regions which will experience below-normal temperatures to the Great Lakes, Mid-Atlantic, and Northeast. 
 
By the end of the month, a west to east flow will probably set up across the US, bringing fairly active weather pattern, with numerous winter storms impacting much of the country. On one hand, there will still be areas of moderate to heavy snowfall into the northern US, while on the other hand it will be a bit milder for the south-central and southeastern US, where a spring-like weather pattern may bring strong thunderstorms.

The period of milder conditions will probably continue through the second week of February.

US gas inventories levels

The Energy Information Administration (EIA)reported on Thursday, that US natural gas stockpiles fell by less than expected in the seven days through January 10th, despite the withdrawal being the largest on record. US gas supplies fell by 287 billion cubic feet, trailing analysts’ projections for a decrease of 303 billion cubic feet, but was almost double the five-year average decline of 159 billion cubic feet.

Total gas held in underground storage hubs equaled 2.530 trillion cubic feet as of January 10th, 20.7% below last year’s 3.189 trillion stored. The deficit to the five-year average widened to a record 14.9% from the preceding week’s 10.1%.

Inventories in the East Region fell by 149 bcf to 1.254 trillion and were 18.9% below the five-year average of 1.546 trillion cubic feet. The West Region received a net draw of 31 bcf to 364 bcf, 11.2% below the average. Stockpiles in the Producing Region slid by 107 billion cubic feet and reached 912 bcf, 10.2% beneath the five-year average of 1.016 trillion cubic feet.