U.S. gas inventories are nearing record highs for this time of year, propelled by exceptionally mild temperatures during the winter of 2023/24, attributed to the El Nino weather phenomenon.
The surplus amounts to 2,484 billion cubic feet (Bcf) as of April 26, 2024, substantially above the 10-year seasonal average. This surplus is a consequence of the warm weather patterns associated with El Nino, which reduce heating demand across the northern states.
During the winter of 2023/24, North America experienced the warmest temperatures on record, resulting in a decrease in heating demand. Consequently, gas prices plummeted to historic lows, with front-month futures averaging just $1.75 per million British thermal units in March 2024, the lowest in over 33 years. However, the current ultra-low prices are driving increased consumption by power generators and curtailing production, indicating a potential elimination of the surplus before the end of winter 2024/25.
The decline in gas prices has already begun to restore balance to the market. Surplus inventories have remained flat since mid-March after consistently rising since October. Moreover, the forthcoming winter of 2024/25 is expected to be colder, resulting in higher heating demand and gas consumption. The fading of El Nino conditions and the likelihood of stronger winter weather patterns further support this expectation.
Additionally, the surge in gas-fired electricity generation, driven by low prices, has significantly increased gas consumption. Gas-fired generators operated at record levels during the winter of 2023/24, burning through unprecedented volumes of gas despite mild weather conditions. This trend is likely to persist, further reducing surplus inventories.
Furthermore, gas exports have become increasingly influential in shaping domestic inventories and prices. Pipeline and LNG exports have risen steadily, absorbing a significant portion of domestic production. By February 2025, exports are forecasted to absorb 22% of all domestic dry gas production, further contributing to the reduction of surplus inventories.
Finally, the impact of ultra-low prices on domestic gas producers cannot be overlooked. Major producers have announced cuts to drilling and production programs, indicating a potential slowdown in production growth or even a decline. As a result, the combination of increased consumption, exports, and reduced production is expected to eliminate the surplus and drive prices higher by the end of winter 2024/25.
