Natural gas demand was at an all-time high for a second day Tuesday, but prices slipped as more moderate temperatures were expected and a government agency lowered its estimate for overall gas consumption in 2014 by 2.2 percent.
Platts' Bentek Energy said natural gas delivered to consumers across the U.S. hit 134.3 billion cubic feet per day, surpassing Monday's record 130.4 Bcf/d. Demand was highest in the Northeast where residential and commercial demand jumped 30 percent from Monday's level.
February natural gas futures, traded on the Nymex, fell 7 cents to $4.299 per million British thermal units, after moving higher earlier in the day. Natural gas has run up 2.3 percent since the beginning of January, and is up 23 percent in the last three months.
But falling inventories could keep the upward pressure on prices, especially if there's another cold blast. "We're chewing through inventory. We'll probably be down to 2 trillion cubic feet in January, and we didn't see that level until March last year. We're ripping through it. There's going to be some extremely large withdrawals in storage in coming reports," said John Kilduff of Again Capital.
Kilduff said production declines in freezing weather as demand picks up. He said production was down 1.2 Bcf in the past week. "If we're going to see a run at $5, it will be fairly soon. The storage reports will certainly create a catalyst for a bump higher," he said, noting it would probably be a temporary hike.
The frigid weather, bringing subzero temperatures and severe wind chills, stretched across the Midwest, to the South and up the East Coast into New England. It was expected to moderate and there could even be above normal temperatures in some areas later in the week.
The National Weather Service said temperatures are expected to remain well below normal Tuesday night across most of the central and eastern U.S., but the extreme wind chills are expected to rise, as winds subside and the strong low pressure moves farther north into Canada.
The arctic blast, however, was enough to send spot gas prices flying, with prices for a pipeline hub servicing New York City trading as high as $90/mmBtu Monday before falling back to around $28 Tuesday, according to Dow Jones.
Jack Weixel, director of energy analysis with Bentek, said residential and commercial demand for natural gas this winter, starting Nov. 1, is averaging 43.2 billion cubic feet per day, compared to 36.2 Bcf/day last year, in the same time period.
"On Monday, demand from the power sector, when most of the cold weather was in the middle of the country ... shot up to 30.7 Bcfs from 22.5," from Sunday to Monday, Weixel said. Demand by residential and commercial users, served by gas utilities, jumped about 25 percent between Sunday and Monday, he said.
Record demand Monday and Tuesday tops the record of 122.3 Bcfs set on Jan. 16, 2009.
The Energy Information Administration on Tuesday said U.S. natural gas production is expected to hit a fifth consecutive record high in 2015, and marketed natural gas production in 2014 is expected to rise to 71.66 Bcf per day, up 2.1 percent from 2013's estimated level.
EIA lowered its estimate for gas consumption in 2014 by 2.2 percent from 2013 levels to 69.71 Bcf per day. It said 2015 consumption would rise to 71.13 Bcf per day.
Gene McGillian, analyst with Tradition Energy, said the withdrawals have been surprising as has the stronger demand. But the futures market had already factored in the colder weather and the forecast for next week and the week after are not nearly as cold.
"I think it's pretty clear if we continue to see this winter play out til the end of Feburary, the market could easily go up to $5 or a little above it," he said.
—By CNBC's Patti Domm. Follow her on Twitter @pattidomm