As winter approaches, the northern hemisphere braces for peak natural gas demand. For the United States, the world’s largest producer of natural gas, this could lead to increased price fluctuations and potential supply shortages.
According to energy consultancy Wood Mackenzie, five key factors will impact the U.S. natural gas market this winter. Leading the list is supply control, as producers respond to persistently low market prices. For over a year, natural gas prices have remained low, prompting producers to scale back their well-drilling plans earlier in 2024. While the impact of these decisions may take time to fully materialize, Wood Mackenzie predicts that the winter season could experience tightness in supply, depending on how demand unfolds.
Another factor influencing natural gas demand this winter is the continued growth of wind and solar energy. Wood Mackenzie notes that these renewable sources may alter the usual demand patterns, creating unexpected surges in natural gas use when wind and solar power generation falls short.
This raises concerns about natural gas storage and whether there will be enough to handle sudden demand spikes. Currently, the U.S. faces a storage problem, as building new storage capacity has not been a priority. Wood Mackenzie points out that storage should serve as a cushion during times of high demand or limited supply, but in recent years, little new storage has been added. Interest in expanding storage tends to peak ahead of the summer and winter seasons, but it has not been strong enough to drive significant capacity expansion. With only about 50 billion cubic feet of new storage planned, far fewer than what is needed to keep up with the gas market’s growth, the risk of shortages increases in the event of unexpected demand spikes.
Wood Mackenzie highlights that such spikes are becoming more likely due to climate change, which is intensifying extreme weather events. For instance, the report cites the Arctic blast that struck the U.S. in January, despite the rest of the month being milder than usual. This blast caused a surge in natural gas demand, reaching 163 billion cubic feet per day at one point.
The fifth factor influencing the U.S. natural gas market this winter is liquefied natural gas (LNG) exports. The demand for U.S. LNG is expected to rise as Europe prepares for colder temperatures. In the first half of the year, European demand for LNG was subdued, as gas storage was sufficient, and prices were tempered by reduced demand. However, with the expiration of the transit contract between Ukraine and Russia, Europe is likely to face a supply gap, which may be filled by U.S. LNG exports. As the European Union looks to diversify its energy sources and avoid tariffs on exports to the U.S., the need for U.S. LNG is set to increase as winter temperatures drive up energy consumption.
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