Nat-Gas Plunges on Record Production and Seasonal Temps

Oct Nymex natural gas (NGV22) on Tuesday closed sharply lower by -0.641 (-7.30%).

Oct nat-gas prices Tuesday tumbled to a 4-week low and closed sharply lower on seasonal U.S temperatures and high nat-gas production.  Forecaster Atmospheric G2 said normal temperatures are expected across the Midcontinent and southern U.S. from September 11-15, which will curb nat-gas demand from electricity providers to provide power for air-conditioning usage.  Also, BNEF reports that U.S nat gas production rose to a record 100.87 bcf on Saturday and stayed above 100 bcf for five consecutive days.

Nat-gas prices late last month fell back from a 14-year nearest-futures high on the announcement of a delay in the restart of the Freeport LNG export terminal.  The Freeport terminal said Aug 23 that it won't reopen until early to mid-November, later than a previous announcement of a restart in October.  That will delay an increase in U.S. nat-gas exports and allow U.S. nat-gas storage inventories to build.

Nat-gas prices Aug 23 rose to a 14-year high after Russia said it would halt gas flows through the Nord Stream pipeline to Germany for three days on Aug 31, fueling speculation that the pipeline won't restart as planned after the maintenance work.  The surge in European nat-gas prices has sent electricity costs soaring as German electricity prices for next year climbed to a record 995 euros a megawatt-hour last Friday, and French electricity prices jumped to a record 1,130 euros a megawatt-hour.  In crude oil market terms, it's the equivalent of crude at $1,600 a barrel.

Lower-48 state total gas production on Tuesday was 100.1 bcf, up +8.1% y/y, and the fifth consecutive day that U.S. gas production was above 100 bcf.  Lower-48 state total gas demand on Tuesday was 67.9 bcf/day, up +13% y/y.  LNG net flow to U.S. LNG export terminals Tuesday was 10.9 bcf/day, up +0.8% w/w.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported last Wednesday that total U.S. electricity output in the week ended Aug 27 fell -6.4% y/y to 87,491 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Aug 27 rose +2.9% y/y to 4,118,759 GWh.

Nat-gas prices have support as EU countries agreed to cut nat-gas demand from Russia by 15% over the next eight months.  Also, Russia recently slashed nat-gas exports to Europe to 20% of capacity, putting upward pressure on European nat-gas prices.  Russia has already halted nat-gas shipments to Demark, Finland, Bulgaria, Netherlands, Poland, and Latvia and reduced supplies to Germany for not acceding to its demand for gas payments in Russian rubles.

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