U.S. Gas Bulls Hoping for Another Winter Storm?

The U.S. gas market has been in a pickle since the 2023/2024 warm winter that caused storage to be oversupplied throughout the course of Summer 2024. While production curtailments, reduced drilling activity in gas-directed basins, and record power burn helped to narrow the storage surplus relative to the five-year average, it wasn’t enough to completely eliminate the overhang. This leaves the U.S. gas market oversupplied by over 200 Bcf heading into the upcoming winter.

Despite the storage overhang continuing into Winter 2024/2025, the forward curve for Cal25 implies that the market believes excess gas in storage will be worked off throughout the winter. While the Henry Hub forward curve has come down throughout the shoulder season, as of November 11^th, Summer-2025 pricing is averaging $1.07 higher than the 2024 calendar month average settlements.

However, recent history suggests that the level of demand needed to balance the market entering next summer does not align with the current weather outlook.

In a normal winter, where storage follows the five-year average withdrawal rate, the Winter-2025 storage exit would be expected to be 1.98 Tcf, 350 Bcf higher than the five-year average winter storage exit. This implies the storage overhang would continue into Summer 2025 and, consequently, hamper pricing.

Even worse for the market would be a winter like 2023/2024, when the U.S. experienced a warmer-than-average winter. In this case, winter storage could exit over 2.4 Tcf. This would likely cause a similar price crash that occurred earlier this year, when storage inventories rose drastically due to the lower-than-normal storage withdrawals.

To truly balance the market, the withdrawal rate would need to follow Winter 2017/2018 to get back to the five-year average. This would spur enough demand to work off the existing overhang and cause the Winter-2025 storage exit to approach 1.5 Tcf, supporting more constructive pricing in 2025.

These scenarios are illustrated in the chart below.

And yet, NOAA’s seasonal temperature outlook published October 17^th for the upcoming December–February does not indicate a cold winter is incoming. It most closely resembles the outlook for Winter 2022/2023, a winter on par with the five-year average. However, it also resembles NOAA’s archived outlook for Winter 2017/2018, the type of winter needed to balance the market. The key difference between these two winters: the bomb cyclone of 2018 that hammered the U.S. East Coast.

Thus, all else equal, the U.S. gas market is in a position where a normal winter is not sufficient to balance the market and support the current level of pricing in the forward curve. Instead, market bulls may need a winter storm to significantly boost demand and work off the storage overhang to avoid another repeat of the weak gas-price environment of this past summer.

BTU Analytics is a FactSet Company. This article was originally published on the BTU Analytics website.

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