Winter Cold Causes Volatile Natural Gas Market in Midwest

Seven states in the Midwest (Iowa, Illinois, Indiana, Michigan, Minnesota, Missouri, and Wisconsin) experienced an extremely cold winter, with some cities in these states suffering their coldest winter ever, according to the National Oceanic and Atmospheric Administration (NOAA). Additionally, some areas in the Midwest set records for the number of days below zero degrees Fahrenheit. For the month of February, the weather in the U.S. was 10.9 colder than last year and 13 percent colder than normal. The freezing cold weather had a substantial effect on natural gas storage. In its weekly reports throughout the winter, the Energy Information Administration (EIA) detailed the increasing reduction in natural gas stocks. On March 31, 2014, it released its monthly natural gas report, with data for January 2014. The year in 2013 set records for dry gas production [24,280 billion cubic feet (Bcf)], total consumption (26,034 Bcf), and deliveries to commercial consumers. Deliveries to residential and industrial customers were at their highest since 2003. In December 2013, monthly dry natural gas production reached what was a record high of 2,092 (Bcf) and total consumption of 2,912 Bcf. In January 2014, both of these record highs were broken; dry natural gas production reached a new record of 2,098 Bcf, and total consumption reached 3,219 Bcf.

The cold temperatures tightened demand, and some utilities in the Midwest put constraints on industrial customers and asked residential customers to turn down their thermostats to maintain system stability. Xcel, for example, reportedly asked almost 850 commercial customers in various Midwest states to lower their gas usage. Additionally, utilities in Minnesota, Wisconsin, and North Dakota (three states that saw some of the worst of the cold) asked customers to cut back on natural gas usage in response to a pipeline explosion south of Winnipeg, Manitoba that ruptured a TransCanada pipeline on January 25, 2014, in addition to two others that collectively disrupted the main supply of natural gas to some of these areas.

The U.S. also set a record on January 7, 2014 for peak day natural gas consumption of 139 Bcf, 33 percent higher than the five-year average consumption volume of 104.6 Bcf. In January, the U.S. experienced the largest withdrawal of natural gas stocks for a month (966 Bcf), substantially more than the previous record (847 Bcf in January 2003). A chart below illustrates the staggering storage withdrawals over the past four months:

Date	Lower 48 States	Eastern Consuming Region	Western Consuming Region	Weekly Producing Region
Nov 08, 2013	3834	1984	553	1297
Nov 15, 2013	3789	1953	552	1284
Nov 22, 2013	3776	1939	546	1291
Nov 29, 2013	3614	1861	530	1223
Dec 06, 2013	3533	1815	504	1214
Dec 13, 2013	3248	1683	450	1115
Dec 20, 2013	3071	1568	429	1074
Dec 27, 2013	2974	1501	412	1061
Jan 03, 2014	2817	1403	395	1019
Jan 10, 2014	2530	1254	364	912
Jan 17, 2014	2423	1187	349	887
Jan 24, 2014	2185	1063	327	795
Jan 31, 2014	1923	920	301	702
Feb 07, 2014	1693	814	259	620
Feb 14, 2014	1443	685	229	529
Feb 21, 2014	1348	607	217	524
Feb 28, 2014	1196	525	190	481
Mar 07, 2014	1001	430	169	402
Mar 14, 2014	953	395	167	391
Mar 21, 2014	896	356	164	376

The EIA correctly predicted that U.S. natural gas supplies would fall to an 11-year low at the end of the winter heating season in March. The March 21 level (896 Bcf) was the lowest supplies level since May 2003. The cold temperatures and decreasing gas supplies caused natural gas prices to be exceptionally high this past winter. For example, the February index price at Alliance Interstates, a major supply source for Midwest customers, averaged a whopping $13.99 per dekatherm (Dth). In Michigan, intraday highs in February exceeded $40 per Dth. Daily city-gate prices for Chicago in February ranged from $6.12 to $28.87 per Dth. Hopefully spring will bring back stability to the natural gas market that the winter lacked.