Natural gas holds but warm weather ahead

Shifting weather patterns put a dampener on a late-year rally for natural gas.

Natural gas trading

Forecasts suggest switch to low US natural gas demand

Henry Hub futures began the week on a stronger footing after a weak close on Friday.

At the time of writing, US natural gas futures had gained more than 2%, trading for around $3.740.

However, weather systems are starting to shift once again. Last week’s forecast called for cooler temperatures, giving US gas prices a bump. Now, the outlook has shifted back to low demand in the immediate future.

Natural Gas Weather says: “National demand will be moderate Monday as chilly lows of 0s to 30s linger over the Midwest and Northeast due to recent weather systems. Demand would be stronger if not for mild to nice conditions over most of the rest of the US w/highs of 50s to 70s.

“National demand will again become light Wed-Sun as high pressure strengthens over most of the central, southern, and eastern US w/highs of 50s to 70s.

“Colder exceptions will be across the colder Northwest and N. Plains as chilly weather systems bring rain, snow, and lows of -10s to 30s.

“Overall, national demand will be MODERATE Monday into Tuesday, then LOW.”

Traders are continuing to monitor cold winds from Canada. Earlier in the year, we were bracing for chilly winds from the US’ northern neighbour and expected them to support prices through the winter. However, the outlook is warm, as mentioned above, so we might have to wait until January or February for true winter demand to kick in.

According to Baker Hughes’ rig count, the US removed a rig from its gas infrastructure. The total number of operational rigs throughout the United States stands at 104 as of the week ending December 10^th.

Examining US natural gas inventories ahead of the week’s update

The latest EIA natural gas storage report lands this week on Thursday 23^rd. Ahead of that, let’s take a look at the most recent available data.

Working gas in storage was 3,417 Bcf as of Friday, December 10, 2021, according to EIA estimates. This represents a net decrease of 88 Bcf from the previous week.

Stocks were 326 Bcf less than last year at this time and 64 Bcf below the five-year average of 3,481 Bcf. At 3,417 Bcf, total working gas is within the five-year historical range.

New York City bans gas hookups

The city of New York has become one of the next major US cities to ban natural gas hookups and connections. This is part of a drive to clean up the city’s greenhouse gas emissions, of which 70% come from New York’s natural gas consumption.

The ban will apply to structures under seven stories tall starting in 2024 and to larger buildings in 2027.

This will possibly have high implications for long-term US gas demand. One thing to note here is the cold. New York’s location in the north of the mainland United States means it is often subject to sub-0 temperatures and snowfall in the winter months. Can it sustain its heating needs through alternative energy needs?

Other US cities have implemented similar bans. In Seattle, another northern city with inclement weather, has decreed gas boilers and heaters are banned from new build houses.

This does have interesting implications for energy transition and natural gas trading in the long term. As more and more cities pick up similar initiatives, the lower worldwide gas demand will become. It’s simple economics. However, energy transition is still some way off. Gas will be part of the energy mix for at least the next decade and possibly beyond.