Natural gas tank
The U.S. Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO) forecasts working natural gas inventories on October 31 will be 3,470 billion cubic feet (Bcf), 365 Bcf (10%) lower than the five-year average and 346 Bcf (9%) lower than last year’s level. This forecast inventory level would be the lowest end-of-October storage level since 2008, when inventories ended the month at 3,412 Bcf. The natural gas storage refill season is traditionally April 1—October 31, when natural gas is typically put into underground storage facilities to prepare for increased winter demand for space heating, particularly in the residential and commercial sectors—although injections into storage often occur in the first few weeks of November.
Current New York Mercantile Exchange (Nymex) winter strip futures prices—the average price for November through March futures contracts—for this coming winter have remained relatively unchanged since January 2018 and are similar to the last 3 years’ winter strip futures prices in July. The winter strip price can reflect expectations of meeting peak winter demand based on factors such as natural gas inventories heading into the winter or production expectations. Because inventories are forecast to remain lower than the five-year average, which would put upward pressure on the futures price, other factors are contributing to downward pressure on winter-strip prices:
- Expectations of continued production growth: The STEO forecasts total U.S. dry natural gas production for November 2018–March 2019 will average about 84 Bcf per day (Bcf/d), up 6 Bcf/d from the winter period last year.
- Expectations of average injection levels for the remainder of the refill season: Net injections reported since April 27 have generally followed the five-year average, with the forecasted end-of-season level 3% lower than the five-year minimum.
A key uncertainty for end-of-season inventory levels is weather-driven demand from the electric power sector. Natural gas demand for electricity generation tends to peak in the summer months with demand for air conditioning. The current temperature outlook for August–October is for above-normal temperatures throughout the Lower 48 states. The STEO is currently forecasting natural gas use in the electric power sector for August–October to average about 31 Bcf/d, up 2 Bcf/d from last year for the same time period. While production is largely forecasted to keep up with growing sector demand and exports, more extreme weather could lead to higher demand for natural gas-fired generation and, subsequently, a lower inventory level by October 31.
