Natural gas inventories in the East remain elevated following a mild winter. But prices have started to pop in parts of the region amid bursts of early season cooling demand and expectations for more to come.
The combination of lighter production, intense heat and humidity in the Southeast and forecasts for near-record average temperatures this summer from the Mid-Atlantic to New England could galvanize strong cooling demand and hasten faster storage surplus reductions, said Paragon Global Markets LLC’s Steve Blair.
Those catalysts have already sent prices in the Southeast to the highest levels in the Lower 48. NGI’s Southeast Regional Avg. clocked in at $2.925/MMBtu on Friday, more than a buck higher than the National Avg. of $1.585.
“The storage overhang,” from a price bull’s perspective, is “coming down on a weekly basis and that is not hurting the situation at all,” Blair, managing director of institutional energy sales, told NGI.
After the U.S. Energy Information Administration (EIA) on Thursday printed a 37 Bcf injection for the East, stocks in the region totaled 575 Bcf for the week ended May 31. This put storage levels in the region 25.5% ahead of the five-year average. But that was down from 28% a month earlier. The national tally of storage – 2,893 Bcf – was 25% higher than the average of the previous five years.
An oversupplied market emerged after record production early this year intersected with mild winter weather and seasonally weak heating demand.
However, several producers scaled back activity throughout the spring in response to soft prices, collectively reducing output from all-time highs around 107 Bcf/d in February to around 99 Bcf/d over the past week, according to Wood Mackenzie data on Friday. Leading producer EQT Corp., as Blair noted, is poised to bump output back up this summer. Still, production overall is off meaningfully from record levels and down more than 2 Bcf/d from a year earlier.
At the same time, a summer outlook from the National Weather Service called for above-average temperatures across nearly every part of the Lower 48. This included a forecast for record or near-record heat from the South to the Northeast.
After a pause in the second week of June, AccuWeather forecasts called for temperatures to climb along the East Coast, spiking demand in the densely populated and heavy gas-consuming Northeast. The conditions are expected to persist throughout the summer months. AccuWeather said a hot summer is expected for nearly all of the Lower 48.
“Air conditioners will have their work cut out for them,” said AccuWeather meteorologist Brian Lada.
From June through August, AccuWeather forecast temperatures to average at least 2 degrees above historical averages across more than half of the country, including the Northeast.
“In New York City, there will likely be twice as many 90-degree days compared to last year, when there were 12. In Boston, there could be three to four times as many 90-degree days this year compared to the five recorded in 2023,” Lada said. “The mercury is predicted to hit 90 degrees more frequently than historical averages across many other Northeast cities, such as Washington, D.C., and Philadelphia.”
Should the Northeast cook as forecast for this summer, utilities in the heavy gas consuming corner of the country could buy more fuel in the coming months for immediate use and inject less into underground stockpiles. That could trim supply excesses relative to past years and provide a dose of price support, Paragon Global’s Blair said.
Spot prices in the Northeast this week were choppy yet stronger than earlier in the season. On Friday, NGI posted a Northeast Regional Avg. of $1.275, below the national average but up from spring lows around $1.200. The regional average had topped $1.500 earlier in the week.
Already, searing heat in Texas and the West has curbed gas injections into storage in those parts of the country.
Inventories in the South Central were 18% above the five-year average at the close of May, according to EIA, but that was down from spring highs above 40%. The Pacific surplus, at 21%, was cut in half since March.
Mounting export demand during the summer months could add bullish hues to the national natural gas storage picture.
“LNG feed gas flows should begin to improve with hot temps continuing in Asia and also in parts of Europe,” Blair said. “That could easily offset some of the production increase that might be seen at the same time.”
For the first week of June, early national storage injection estimates submitted to Reuters ranged from 61 Bcf to 90 Bcf, with an average of 75 Bcf. The predictions compare with a five-year average increase of 89 Bcf.
Tudor, Pickering, Holt & Co. analyst Justin Martin is looking for a 63 Bcf build and said intensifying seasonal demand could help to further reduce inventory surpluses and boost prices. He is “watchful for potential increased upside through the summer.”
