Winter weather to disrupt U.S. gas production, increase prices

By Alton Wallace
The Center Square 

Widespread extreme cold is expected to restrict the production of natural gas in the U.S. in the coming days, with supply disruptions likely in key shale basins that could cut average daily output by about 10%, industry analysts say.

The price of benchmark natural gas futures at Henry Hub in Louisiana for deliveries in mid-February soared this week, rising 59% on Friday afternoon, the biggest weekly increase since 1990.

The spike is expected to cause bill increases for residential consumers in some states, but the timing and degree of the impact will vary depending on the utility. Entergy customers in Louisiana, for example, will likely see fuel adjustment charges on their bills in two months, reflecting higher wholesale prices for gas during an upcoming winter storm.

Analysts expect large withdrawals of natural gas from storage in the weeks ahead. The U.S. Department of Energy estimated U.S. inventories of natural gas in underground storage at 3,065 billion cubic feet on Jan. 16, 141 billion cubic feet higher than last year and 6.1% above the five-year average of 2,888 billion cubic feet for this time of year. 

“This deep freeze is hurting production, especially for natural gas,” Price Futures Group analyst Phil Flynn wrote in his daily market commentary. ”Daily output is taking a hit, with losses soaring to as much as 10 billion cubic feet a day at peak times! Even under more moderate scenarios, we’re seeing production drops between 0.2 and 2.5 billion cubic feet per day across the hardest-hit regions, starting around January 20–22 and sticking around through January 31,” Flynn wrote.

The culprit is "freeze-offs" that occur when water or hydrates, produced along with natural gas, freeze and then solidify during periods of extreme cold. They create blockages that disrupt flows from wellheads at the processing facilities where impurities are removed, as well as inside pipelines that supply gas-fired power generation plants and industrial users.

Freeze-offs played a role in a 2021 winter storm in Texas that made headlines for leaving millions of people without power for days. According to a study from the Federal Reserve Bank of Dallas and the Federal Energy Regulatory Commission, freeze-offs caused a 45% drop in Texas natural gas production over a five-day period.

The study found 87% of unplanned outages at electricity generation plants in Texas were due to insufficient supplies of natural gas, caused mostly by freeze-offs at the wellhead where it is produced and at nearby processing plants.

The storm resulted in between $80 billion and $130 billion in financial losses to the Texas economy and killed at least 210 people, according to Glenn Hegar, the state’s comptroller of public accounts, in a report prepared in 2021.

In response, the Texas Legislature mandated new weatherization standards for the natural gas industry. The Texas Railroad Commission created a Critical Infrastructure Division to identify and inspect key elements of natural gas infrastructure and ensure readiness for winter storms, inspecting 7,400 facilities last year to ensure compliance with weatherization standards, according to consultancy firm RBN Energy.

Freeze-offs are most likely around the Haynesville shale gas basin in northwest Louisiana, where wells, pipelines and other infrastructure are less capable of functioning in extreme cold, RBN Energy said in a Friday blog post.

Reduced gas production is also expected in Oklahoma, New Mexico, Colorado, North Dakota and within the prolific Marcellus and Utica shale basins of Pennsylvania, Ohio, and West Virginia, where equipment is designed to operate in temperatures as low as zero degrees.

Overnight lows are forecast to drop to near zero degrees during the next few days in the Marcellus and Utica shale regions, where about 32% of U.S. natural gas is produced. Reduced gas production is expected over the next nine days in Pennsylvania, Ohio and West Virginia, where equipment is designed to function at temperatures as low as about zero degrees.

The Climate Prediction Center's long-range guidance features below-normal temperatures for the Mid-Atlantic and Northeast from Wednesday to Feb. 3. In Central Pennsylvania, AccuWeather’s daily forecasts for the first week of February show overnight lows ranging from 7 to 12 degrees.

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