The winter of 2023-2024 is likely to go down as the warmest on record for the United States. That goes a long way toward explaining why natural gas demand and prices deflated over the course of the heating season.
Ahead of an official call later this month by the National Oceanic and Atmospheric Administration (NOAA), AccuWeather said this week that its preliminary data showed the average temperature across the country would rank this winter as the mildest in records that date to 1893. The data span December, January and February – the heart of the season.
AccuWeather meteorologist Paul Pastelok said a strong El Niño pattern, which developed last summer, contributed substantially to a mild, mostly snowless winter season for the northern Plains, Midwest and Great Lakes – often the regions that see the most frigid weather. He also said climate change that warmed the planet played a significant role.
"There were not many areas of the globe that were consistently cold through the three-month period, so there was nowhere to drag any persistent cold air into the weather patterns of North America," Pastelok added.
Weather, of course, is the dominant factor on the demand side of the domestic natural gas price equation. The benign conditions of this heating season helped to drive down Henry Hub futures, keeping benchmark prices consistently below $2.00/MMBtu over the past several weeks – at times 50% or more below year-earlier levels. NGI’s Spot Gas National Avg. dropped below $1.200 this week.
Cash prices reached the lowest point since 2020, when the pandemic temporarily suppressed demand across the energy sector. This time around, mild weather intersected with robust production that reached record levels around 107 Bcf/d early this year. The combination threw supply/demand out of balance and caused storage surpluses to swell relative to historical norms. As of March 8, inventories were 37% above the five-year average.
Major exploration and production (E&P) companies including Chesapeake Energy Corp. and EQT Corp., have recently slowed output in an effort to balance the market. Production estimates as of Thursday over the past seven days averaged 101.8 Bcf/d, according to Wood Mackenzie. With storage so stout, however, prices have yet to sustain upward momentum.
Many E&Ps appeared hesitant to pull back too much, given expectations for a surge in LNG demand next year. That’s when new liquefied natural gas facilities are set to demand substantially more fuel for export to Europe, Asia and elsewhere.
“No surprises that the weather kept demand down and outweighed both the Chesapeake and EQT production cuts,” Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI.
He noted that recent forecasts called for more seasonal weather in the back half of March, though those conditions were likely to give way to comfortable spring weather in April.
“Maybe we get a little bounce if the forecasts remain for some more normal temps but that only seems to be for a short period of time, so I don’t expect too much,” Blair said.
Still, the weather patterns and climate conditions that curbed cold temperatures over the winter could also deliver sizzling heat this summer, Blair added. The past two summers have been among the hottest on record. Should the coming cooling season provide a replay, natural gas demand could rebound and prices could follow suit, he said.
The other big question Blair asked is, “will cooling demand start earlier than normal and thus trim some storage?”
NOAA estimated there is a one-in-three chance that 2024 could be warmer than 2023, and a 99% chance it may rank among the five warmest on record. NOAA’s Climate Prediction Center outlook in February said the upcoming summer called for most of the Lower 48 to see above-average temperatures.
Production And Prices
While prices are bound to recover some ground with even normal summer weather, they could still finish the year in a hole relative to recent history.
The U.S. Energy Information Administration (EIA) expects the Henry Hub spot price to average about $2.25 in 2024, a 10% decrease from 2023 and a 65% drop from 2022. In its March Short-Term Energy Outlook, EIA forecast domestic natural gas inventories would be more than 30% higher than average at the end of the winter season.
According to EIA’s forecast, low natural gas prices will only “slightly” decrease domestic production in 2024 compared with record production last year. EIA Administrator Joe DeCarolis said lofty levels of associated gas produced alongside record oil output in the Permian Basin would largely offset decreases elsewhere.
"Some producers have announced curtailments in production or reductions in upstream spending on natural gas-directed activities this year," DeCarolis said. "But with so much domestic natural gas production tied to growing crude oil production, we expect natural gas production to decrease far more slowly than prices have."
RBN Energy LLC analyst Tom Biracree said gas-weighted U.S. producers collectively are guiding toward a 1% decrease in output this year. Still, “cautious conference call comments indicate other producers may be prepared to follow suit,” he said.
Further curtailments, a hot summer and a narrowing of storage surpluses are the keys to a brighter price picture, Blair said. The market may need all three to converge – and early in the cooling season – given the measly impact the current winter made, he said.
By state, AccuWeather said its preliminary data showed Minnesota, Wisconsin and Michigan all had their warmest meteorological winter on record. The firm said several cities in other Midwest states also posted record levels of above-average temperatures: Des Moines, IA; Fargo, ND; and Sioux Falls, SD.
Several cities in the East similarly reported all-time high levels of warmth through February, including Burlington, VT, and Albany, NY. AccuWeather said every state in the Lower 48 reported higher-than-average temperatures this winter.
"The historic warmth this winter…follows trends that have been observed in recent decades – resulting from a warming atmosphere driven by climate change and other factors," said AccuWeather chief meteorologist Jon Porter.
