Natural gas production in the Rockies, like the country overall, is at vigorous levels this fall even as demand from western markets eases. The result: stout supplies in storage and soft prices.
Mountain region inventories were 23.5% higher than the five-year average as of Nov. 24, the most recent storage update from the Energy Information Administration (EIA) shows. While stocks are up everywhere on robust output and modest weather-driven demand, the Mountain region surplus far exceeds the national surfeit – 8.6% – and every other section of the country. At 10%, the Pacific region is the only other to post a double-digit surplus to the five-year average, EIA said.
Aside from last winter, California demand for Rockies gas “has been performing well below average” amid relatively mild summer and fall weather, Wood Mackenzie analyst Quinn Schulz told NGI. California demand in June, August and part of September was “substantially below” the five-year average, he said.
Since mid-summer, California and other West Coast states also successfully bolstered gas in storage, supported by Permian Basin supplies and steady imports from Canada.
Canadian imports to the western United States hovered around 5.5 Bcf/d much of November, according to Wood Mackenzie data, and continue to do so this month. Canadian imports have held in line – and at times above – year-earlier levels even as overall U.S. natural gas output is near record levels.
Total Lower 48 production topped 106 Bcf/d in November – reaching all-time highs – and continued to approach that level early in December. U.S. producers ramped up ahead of an expected wave of new LNG facilities on the Gulf Coast. The first of those facilities, however, is slated to open in the second half of 2024. Export levels are currently robust, but the record production is outstripping overall demand much of this year, which has enabled utilities to inject more gas into storage throughout the late summer and early fall.
Indeed, total domestic natural gas supply in storage was 303 Bcf above the five-year average as of Nov. 24, according to EIA.
“The production has been remarkable,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI. “That’s really the big story” in terms of storage and the impact on prices.
Price Possibilities
NGI’s Rocky Mtns. Regional Avg. cash prices hovered just above $3.00/MMBtu early this month, down from around $25.00 at the height of December 2022.
Demand in the Rockies region itself proved relatively strong over the summer – followed by an early blast of wintry weather in October – and production has held steady through much of the year. However, demand tapered off notably in November and, at the same time, “production has picked up substantially” in the fall, Wood Mackenzie’s Schulz said. It “has continued to do so, which has helped loosen the region recently.
“The notable thing about these factors is the timing of them allowed storage to pick up quicker than it otherwise could,” Schulz added. “Since California demand has consistently been underwhelming, other loosening factors occurring alongside it, even small ones, had more impact than they otherwise would.”
What’s more, North Dakota natural gas production also is on the rise this fall, the state’s Department of Mineral Resources said, hitting a record high in September. Growth is poised to continue as pipeline egress projects come online and open new paths for gas to flow to the Mountain West. For example, North Dakota natural gas at the start of November began flowing to the Cheyenne hub in southeastern Wyoming for the first time.
TC Energy Corp. and Kinder Morgan Inc. additionally are targeting a March 2026 in-service date for the 430,000 Dth/d Bison Xpress/Bakken Express, a project that would add further transport capacity from the Bakken Shale to Cheyenne.
East Daley Analytics’ Alex Gafford, however, cautioned that the arrival of harsh weather or a prolonged winter could eat quickly into both Mountain and Pacific region storage supplies. Western Rockies prices could jump in response.
The early-season cold front in October that impacted the Rockies and parts of the West Coast “sent natural gas prices surging” in western U.S. markets, he said. “The price action was notable in the Rockies, where regional prices diverged as temperatures fell at the end of October.”
Rockies prices moved in different directions amid the higher regional demand coming from the West. The spread between the Opal hub in southwestern Wyoming and Cheyenne farther to the east “widened to $2.64/MMBtu on October 30, in what could be an early taste of volatility similar to last winter,” Gafford said. “The Opal-Cheyenne spread averaged as high as $11.67 in January 2023, when tight market conditions on the West Coast pulled Opal prices higher.
“The West Coast has been intermittently short natural gas supply for the last few years, leading to a wide spread between prices on the eastern and western side of the Rocky Mountains,” he added.
