Cold-Driven Demand Tightens U.S. Natural Gas Balances

Written by Aaron Studwell, Ph.D. for IIR News (Sugar Land, Texas)

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Summary

Above-normal gas use over the past several weeks has pushed the market into a tighter, weather-driven posture. Marginal shifts in the weather forecasts could yield amplified implications for balances, storage and price direction.

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Heating Demand Heats Up

U.S. natural gas markets have entered the heart of winter with demand running decidedly above seasonal norms, driven by a sustained period of below-normal temperatures across major regions for consumption. The result has been a drastically tighter supply-demand balance, heightened storage draw risk, and increased price sensitivity to near-term weather forecasts.

Recent data show total U.S. natural gas demand rising to roughly 142.5 billion cubic feet per day (Bcf/d) in late December, almost 30 Bcf/d higher than the same period last year and more than 7 Bcf/d above late-November levels. Residential and commercial demand led the increased use, approaching 49 Bcf/d, reflecting persistent cold ranging from the Upper Midwest, extending east into New England, and reaching into portions of the South.

Unlike the brief cold periods from earlier this season, the persistent negative phases of the Arctic Oscillation (AO) and Pacific-North American (PNA) teleconnection patterns have maintained sustained heating demand across portions of the eastern U.S., limiting opportunities for balance relief.

From a market perspective, the persistence of Arctic intrusions has been critical. Continuous cold has driven consistently large storage withdrawals, rather than episodic draws followed by moderation. Implied storage balances have weakened to near -27 Bcf/d, substantially looser than both last month and last year, underscoring the degree to which demand is outpacing supply. As a result, storage trajectories have become increasingly sensitive to incremental temperature changes, particularly across high-population-weighted regions east of the Rockies.

Lower 48 Stalls, Canadian Imports Jump

Power sector demand also is elevated for the time of year, averaging near 36 Bcf/d, roughly 5 Bcf/d above last winter, as colder conditions increase electricity load in power demand sensitive markets. Industrial demand has remained steady near 26 Bcf/d, providing a firm baseload that compounds weather-driven volatility rather than offsetting it.

On the supply side, Lower 48 production remains near 110 Bcf/d, but growth has stalled relative to earlier in the year. This shifts a greater share of balancing responsibility to liquefied natural gas (LNG) exports, Canadian imports and storage draws. Net Canadian imports have increased to more than 6 Bcf/d, about 1.5 Bcf/d greater than last year's levels. Import levels were notable across the Midwest and Northeast, signaling tighter regional fundamentals and reinforcing cross-border dependency during peak winter demand.

For traders, the key takeaway is that the market has entered a regime where weather risk is asymmetrical. Forecast extensions of cold can rapidly translate into outsized storage draws and bullish price responses, while brief warm signals may offer only limited downside relief unless they persist long enough to materially alter weekly balances. With inventories now more exposed to late-winter demand risk, market volatility is likely to remain elevated as January unfolds.

Key Takeaways

• Continuous cold has driven consistently large gas-storage withdrawals.
• Industrial demand for power has remained steady, providing a firm baseload.
• Stalled Lower 48 production means Canadian imports have hit more than 6 Bcf/d.

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