US midcontinent natural gas prices entered this winter significantly higher than the last, when lackluster demand weighed on prices, but those gains may persist into 2021 if forecast models support weather-related demand.
Even with midcontinent heating needs being mostly below year-earlier levels so far this year, expectations for colder weather as the winter unfolds have kept regional gas prices above $2/mmBtu amid replete regional storage levels and the closure of non-essential businesses because of Covid-19.
This winter was forecast to be about 4pc colder than a year earlier and 1pc colder than the 10-year average, according to the National Oceanic and Atmospheric Administration. But recent midcontinent temperatures have actually stayed above the seasonal average, reminding many market participants of last winter's warmth. Last winter was about 9pc warmer than the previous winter and was the sixth warmest winter on record.
Despite overall below-average heating needs during November, when the heating demand season typically begins, regional gas prices were still higher than year-earlier levels.
The east north-central US, which encompasses the Great Lakes area, had about 590 population-weighted heating degree days (HDDs) in November, according to the US National Weather Service (NWS). That was 22pc lower than the seasonal norm. The west north-central US, which encompasses the Great Plains area, had about 663 HDDs in November, 21pc higher than the seasonal norm. HDDs are a measure of weather-related energy demand for heating needs.
Spot prices at the Chicago Citygates, a bellwether for demand in the midcontinent, averaged $1.80/mmBtu in October before rising to average $2.09/mmBtu in November, 7pc higher than the November 2019 average.
Moments of notable weather-related demand scattered across 2020 also contributed to regional price gains during a time where the US Energy Information Administration (EIA) was expecting slashed demand.
In May, the EIA forecast gas consumption would be reduced notably in the commercial and residential sectors because of the coronavirus pandemic, with total gas consumption for 2020 forecast to fall by nearly 4pc from 2019. But a warmer-than-normal summer lifted gas demand above year-earlier levels.
Overall gas use in Illinois, the most populous state in the midcontinent region, was about 1.6 Bcf/d (45mn m³/d) in June, 8pc lower than a month earlier but 13pc higher than a year earlier.
Spot prices at Chicago Citygates for June averaged $1.67/mmBtu, slightly higher than a month earlier but 29pc lower than a year earlier. The Chicago index would later rise to an average of $2.05/mmBtu for September, 3pc higher than the September 2019 monthly average, a result of prolonged heat across the midcontinent that kept cooling needs high.
If spots of warmth were to continue throughout the winter heating demand season, notable upticks in weather-related demand across the midcontinent may likely sustain price gains amid expectations for falling regional gas output and variable cold weather.
In the December Short Term Energy Outlook, the EIA forecast that 2020 gas consumption will now only be nearly 2pc lower than 2019. Spot prices in January are expected to average about $3.10/mmBtu, facing downward pressure from high gas inventories but price gains will be a result of rising heating needs, the EIA said.
