According to this morning's EIA Weekly Natural Gas Storage Report, natural gas storage levels for the Lower 48 states, as of December 12, are slightly above 2013 levels for the first time this year. Inventories totaled 3,295 billion cubic feet (Bcf) as of December 12, compared to 3,289 Bcf in the same week of 2013. Stock levels fell sharply in early 2014 because of extremely cold weather, and remained at or below the five-year minimum level up until this week.

Despite concerns raised about the storage deficit going into the 2014-15 heating season, the year-over-year gap in inventories has been continually falling since April, when it was nearly 1,000 Bcf. Storage levels are still 258 Bcf lower than the five-year (2009 – 13) average, but this gap has also narrowed substantially since April.

At the start of the heating season, the storage deficit was 238 Bcf, but a combination of strong year-over-year production growth, and relatively moderate temperatures compared to last winter, has helped erase this deficit. From November 1, 2014 through this most recent storage report (December 12), storage withdrawals averaged 6.1 Bcf per day (Bcf/d), compared to 12.4 Bcf/d over the same period in 2013.

In the past several weeks, natural gas production levels have risen to record highs, according to production data from Bentek Energy, LLC. Dry natural gas production averaged 70.8 Bcf/d since November 1, which is an increase of 4.8 Bcf/d over that same period in 2013, according to Bentek. A contributing factor to lower production levels in 2013 was production freeze-offs that occurred in December 2013. In the current Short-Term Energy Outlook (STEO), EIA forecast that production will continue to increase through 2015.

According to Bentek data, consumption has averaged 78.1 Bcf/d since November 1, 2014, compared to 83.0 Bcf/d over the same time period last year. More moderate temperatures in 2014 are supporting the decrease in consumption; heating degree days since the start of November have been 7.2% lower in 2014 compared to 2013. EIA forecasts that natural gas consumption for the remaining months of the winter will be much lower than last year's historically cold winter, driven by closer-to-average NOAA temperature forecasts from the National Oceanic and Atmospheric Administration (NOAA). Since the start of November, production has levels were 91.3% of consumption on average. This percentage is higher than last year, when production accounted for 79.4% of consumption. Lower net imports are also contributing to the increasing share of consumption being satisfied by domestic production.

EIA forecasts that inventories at the end of March 2015 will be 1,431 Bcf, significantly higher than the 2014 end-of-March inventories, which were at an 11-year low of 857 Bcf. However, even if the rest of the winter matches last winter in severity, it is unlikely that storage inventories would drop as low as they did at the end of last winter because of the gains in production.

Prices/Demand/Supply:

At most market locations outside of the Northeast, prices rise slightly. Natural gas prices at most market locations had limited daily movements during the week, showing only modest increases Wednesday-to-Wednesday. The small price movements were largely the result of temperatures in most regions that were near or above normal for most of the report week. With colder temperatures at the end of the week, as well as forecasts for continued seasonal weather, prices closed the week higher Wednesday-to-Wednesday. The price at the Henry Hub in Louisiana started the week at $3.61/MMBtu, then after fluctuating slightly throughout the week, closed the week yesterday at $3.65/MMBtu.

Northeast spot prices drop through the week. Due to colder weather and continued system maintenance at the start of the report week, prices at Algonquin Citygate (serving Boston), and Tennessee Zone 6 200L (Connecticut/New England) were elevated last Wednesday at just under $10/MMBtu. As temperatures moderated and maintenance was completed, prices at these locations fell through the week by approximately 50%, closing yesterday at $5.02/MMBtu and $4.82/MMBtu respectively. Prices at Transco Zone 6 NY (servicing New York City), also decreased after starting the week at an elevated level, falling 17% Wednesday-to-Wednesday.

Marcellus-area prices decrease during the week. Three of the most active trading points for Marcellus/Utica production all closed down for the week ending December 17. Prices at Tennessee's Zone 4 Marcellus and Transcontinental's Leidy Line trading point, both started the week slightly over $2/MMBtu, but fell to end the week slightly under $2/MMBtu. Prices at Dominion South, started the report week just under $3/MMBtu, and fell over 50 cents by yesterday's close.

Nymex January contract price ends the report week flat. The January futures contract price oscillated up and down during the trading week by more than 10 cents, ending the report week within 1 cent of its starting price to close yesterday at $3.702/MMBtu. The 12-month strip, the average of January 2015 through December 2015 futures contracts, ended the week down 3 cents, at $3.556/MMBtu.

U.S. Dry gas production continues to rise during the report week. Dry gas production, as reported by Bentek Energy, remained strong, with single days during the report week exceeding 73 billion cubic feet per day (Bcf/d) and a weekly average above 72.5 Bcf/d. Production gains occurred in the Northeast and Southeast, with some production declines noted in Texas and the Rockies. Imports of natural gas from Canada decreased by 1.7% this week as temperatures returned to near or above normal throughout the United States. LNG sendout remained minimal.

Demand decreases as temperatures moderated nationally. U.S. demand for natural gas fell by 0.6% as weather conditions improved for the report week and temperatures returned to near or above normal. The only sector showing an increase for the week was the residential/commercial sector, which logged 0.3% week-over-week growth. Consumption of natural gas used for electrical power generation (power burn) decreased 1.9%, despite a 9.6% increase in power burn in the Southeast (the largest consuming power burn region). In addition to colder weather at the start of the report week in the Southeast, the Joseph M. Farley nuclear power plant in Alabama, which was off line for some of this report week, may account for part of the increased demand for natural gas in that region. This plant came back online on Tuesday. U.S. exports of natural gas to Mexico decreased by 14% for the report week (Wednesday-to-Wednesday).