Viewpoint: US northeast gas stocks a winter concern

US northeast natural gas inventories are closing in on year-earlier levels, but the remaining gap is sparking some concerns about winter shortfalls.

Eastern inventories on 20 April sank to their lowest in four years at 205 Bcf (5.8bn m³), according to the US Energy Information Administration (EIA), after extremely cold winter weather caused heating demand to spike and pipeline operators turned to stored gas as a stopgap. At the end of the withdrawal season inventory levels stood at a 31pc deficit from a year earlier and 33pc below the five-year average.

Operators have injected a total of 302 Bcf into eastern storage since inventories scraped that four-year low, but weekly injections have fluctuated on summer heat. More than half of the 12 weekly injections so far this season have been below average levels, according to EIA data. In the week ended 13 July, east inventories totaled 507 Bcf, about 16pc below a year earlier and 17pc lower than the five-year average.

Injections have remained lackluster as demand for power generation got "off to a strong start this summer," Barclays Research said. During a recent heat wave, daily gas burns reached nearly 40 Bcf/d nationwide, while gas in storage is "very low going into peak summer demand," the firm said.

Inventories will likely exit the injection season on 31 October well below average levels, according to analyst and US government estimates.

A low inventory backdrop could result in higher prices and increased volatility this winter, analysts from Bank of America Merrill Lynch Global Research said.

But robust production growth, mainly from the US northeast and the Permian basin in west Texas, is likely to mitigate the potential for a supply shortfall this winter.

Argus natural gas forward prices show Transco zone 6 New York averaging $5.37/mmBtu in winter 2019-20, with Algonquin Gas Transmission Citygates at $7.41/mmBtu. Zone 6 New York this past winter averaged at $6.42/mmBtu, with Algonquin at $7.40/mmBtu.

Gross natural gas output from the Appalachian region, the largest gas-producing area in the US by volume, rose in June to 28.2 Bcf/d, according to the EIA. Appalachian production that month was up by 1.4pc from May and 20pc higher than a year earlier. And production from the Marcellus and Utica shales in Appalachia is expected to rise significantly with the addition of nearly 6 Bcf/d of pipeline capacity by the end of this year.

The National Oceanic and Atmospheric Administration is forecasting increasing odds of the development of an El Niño weather pattern in the US this winter, which could result in above-average temperatures in New England during the season, possibly limiting heating demand for natural gas.