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Like a Black Friday Sale: U.S. Winter Power Prices Fall as Natural Gas Inventories Hit Eight-Year High
12/03/2024
What’s driving lower power prices this winter? The U.S. is entering the cold season with the largest natural gas storage inventories since 2016, putting downward pressure on power forward prices across much of the country.
Key Numbers to Watch
- Natural Gas Storage: 3,922 Bcf (6% above five-year average).
- 2024 Gas Injections: 1,640 Bcf (21% below five-year average).
- Winter Gas Withdrawals Forecast: 1,957 Bcf.
- SP15 Power Forwards: Down 32% (January) and 37% (February).
- PJM West Hub Forwards: Up 5% (January) and <1% (February).
NATURAL GAS INVENTORIES HIT RECORD LEVELS
According to the Energy Information Administration (EIA), the U.S. finished the 2024 natural gas injection season with 3,922 billion cubic feet (Bcf) of gas in storage. This is 6% above the five-year average for this time of year despite 21% fewer injections during the season than the average.
Net injections for 2024 totaled 1,640 Bcf, with weekly injections ranging from a high of 96 Bcf in May to just 10 Bcf in mid-July. The surplus positions the market for stable supplies through winter, even as withdrawals begin. The EIA forecasts withdrawals of 1,957 Bcf during the 2024-25 heating season, leaving inventories 6% above the 2020-24 average by March 2025.
HOW THIS IMPACTS POWER PRICES
Weak natural gas prices have driven down power forward prices in most regions. Generators have taken advantage of these low prices, burning record amounts of natural gas in 2024, a trend expected to continue through winter.
- Western U.S.:
SP15 (California): According to Platts data, January forward prices are 32% lower than last year, while February packages are down 37%.
ERCOT North Hub (Texas): January prices are trending 27% lower, and February packages are down 31% year-over-year.
- Eastern U.S.:
PJM West Hub: Bucking the trend, January forwards are 5% higher than last year, and February prices are slightly above the 2024 package. Observers are watching PJM’s December capacity auction after July’s auction cleared at record-high prices.
WHAT’S DRIVING REGIONAL DIFFERENCES?
The variability in power prices reflects differences in weather patterns and market conditions. The National Weather Service’s Climate Prediction Center expects above-average temperatures across much of the southern U.S. and the Northeast, likely reducing heating demand in those areas. However, below-average temperatures are forecasted for the Pacific Northwest and northern Midwest, potentially driving localized demand spikes.
In regions like PJM, higher forward prices may also reflect tight capacity markets and anticipation of higher peak demand.
LOOKING AHEAD: GAS PRICES COULD REBOUND
While natural gas inventories are high now, the surplus may not last if winter weather is more severe than expected. Shayne Willette, senior research analyst at S&P Global Commodity Insights, noted that gas withdrawals and power prices will depend largely on how quickly the surplus is depleted.
“As the surplus is depleted, we can expect gas prices to rebound and, with them, power prices,” Willette said.
With natural gas inventories at record levels and winter power prices trending lower, the energy market is bracing for what could be a quieter season—or a sharp reversal if the weather doesn’t cooperate. The big question is how quickly the surplus will shrink and what that means for prices in the months ahead.
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