Winter Storms May Impact US Gas Supply and Costs

Extreme cold is expected to significantly restrict natural gas production across the U.S. in the coming days, potentially reducing average daily output by approximately 10%. This disruption is largely due to “freeze-offs,” a phenomenon that occurs when water and hydrates solidify, blocking gas flow.

The price of benchmark natural gas futures at Henry Hub in Louisiana for deliveries in mid-February has already seen a substantial increase, rising 59% on Friday afternoon – the largest weekly increase since 1990. Residential consumers in some states may experience higher utility bills, although the timing and extent of the impact will vary.

Natural Gas Storage and Production Impacts

U.S. natural gas inventories currently stand at 3,065 billion cubic feet, slightly above both last year’s levels and the five-year average. Analysts predict significant withdrawals from storage in the weeks ahead. Production declines are anticipated across several key shale basins, with losses potentially reaching 10 billion cubic feet per day during peak times. More moderate scenarios still project drops between 0.2 and 2.5 billion cubic feet per day.

Understanding Freeze-Offs

Freeze-offs occur when water or hydrates, produced alongside natural gas, freeze and solidify during periods of extreme cold. These solidified substances create blockages that disrupt gas flows from wellheads, processing facilities, and pipelines supplying power plants and industrial users. A similar issue contributed to the 2021 winter storm in Texas, causing a 45% drop in natural gas production over five days. This event resulted in approximately $80 to $130 billion in financial losses and at least 210 fatalities.

Texas Response and Infrastructure

Following the 2021 crisis, the Texas Legislature mandated new weatherization standards for the natural gas industry. The Texas Railroad Commission established a Critical Infrastructure Division to inspect and ensure the readiness of key natural gas infrastructure. Last year, the commission inspected 7,400 facilities to ensure compliance with these standards.

Regional Vulnerabilities

The Haynesville shale gas basin in northwest Louisiana is particularly vulnerable to freeze-offs due to the region’s less robust infrastructure. Reduced gas production is also expected in Oklahoma, New Mexico, Colorado, North Dakota, and the Marcellus and Utica shale basins of Pennsylvania, Ohio, and West Virginia. While equipment in the Marcellus and Utica regions is designed to operate in temperatures as low as zero degrees, overnight lows are forecast to drop to near zero degrees in the coming days. Approximately 32% of U.S. natural gas production occurs in these areas.

Weather Forecasts

The Climate Prediction Center forecasts below-normal temperatures for the Mid-Atlantic and Northeast from Wednesday to February 3. AccuWeather’s forecasts for Central Pennsylvania indicate overnight lows ranging from 7 to 12 degrees during the first week of February.