Winter Heating Season Wildcard Natural Gas Market in US

According to Barclays, winter heating season has historically been a large wildcard for the gas market, with an ability to place supply/demand balances on a bullish or bearish trajectory. Over the past several winters, demand has varied considerably. Over the past 11 seasons, storage withdrawals have averaged 1,971 Bcf, with a maximum withdrawal of 2,485 Bcf and a low of 1,524 Bcf.

The US gas market has, depending on whether one is a producer or consumer, suffered from/enjoyed the benefits of continuously growing supply over the past few years, said Barclays Capital in a research note.

That prices have not receded further has largely been the result of two successive colderthan- normal winters followed by two hotter-than-normal summers. Above-normal heating demand followed by above-normal air conditioning-driven consumption of gas has rid the market of some of its surplus, preventing a deeper gas price decline.

Even though the market enters the 2011/2012 winter season with record starting-winter storage inventories, and weather has been warmer than normal so far (and is forecast to remain so for two weeks), most of the 2011/2012 winter lies ahead, with a potential swing in consumption outcomes of nearly 1,000 Bcf. Yet, in previous years, storage inventories started winter from a lower level, resulting in endof- winter inventories averaging 1,334 Bcf.

Barclays projections for this heating season, assuming 10-year normal winter weather, is that end-of-March inventories will fall to only 1,977 Bcf, a new record high. Even a winter that is 10% colder than normal would push inventory levels only down to 1,636 Bcf.

By comparison, last winter’s colder-than-normal temperatures pulled storage down to 1,612 Bcf, which failed to rally the market, but kept prices from slipping further. A warm winter puts the market on a decidedly bearish trajectory.

Thus, where cold weather has helped prop up gas prices the past two winters, it is unlikely to do so this season. This bearish fate is borne out by the trajectory of prices over the past weeks, with fresh lows for not only winter prices, but along the curve.

Category: Gas, gas commodity, gas prices, natural gas market, us gas market, winter heating season