Oct Nymex natural gas (NGV22) on Thursday closed down by -0.790 (-8.67%).
Oct nat-gas on Thursday sold off sharply after a nationwide U.S. railway strike was averted and after weekly EIA nat-gas inventories rose more than expected. Â Nat-gas prices came under pressure during the overnight session when the U.S. Labor Department said companies and negotiators representing 100,000 rail workers agreed to a preliminary accord. Â Nat-gas prices had surged Wednesday on concern a railway strike would disrupt U.S. coal supplies and force electricity generators to rely more on nat-gas. Â Nat-gas prices extended their losses Thursday after the EIA reported that weekly nat-gas inventories rose +77 bcf, above the consensus of +73 bcf. Â
Lower-48 state total gas production on Thursday was 99.7 bcf, up +7.3% y/y. Â Lower-48 state total gas demand on Thursday was 64.0 bcf/day, down -2.2% y/y. Â LNG net flow to U.S. LNG export terminals Thursday was 11.8 bcf/day, up +9.2% w/w.
An increase in U.S. electricity output is bullish for nat-gas demand from utility providers. Â The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Sep 10 rose +3.4% y/y to 83,200 GWh (gigawatt hours). Â Also, cumulative U.S. electricity output in the 52-week period ending Sep 10 rose +3.0% y/y to 4,125,542 GWh.
Nat-gas prices have support as EU countries agreed to cut nat-gas demand from Russia by 15% over the next eight months. Â Also, Russia recently slashed nat-gas exports to Europe to 20% of capacity, putting upward pressure on European nat-gas prices. Â 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.
Nat-gas prices have seen downward pressure from the prolonged outage at the Freeport LNG export terminal, which curbed U.S nat-gas exports and put upward pressure on domestic supplies. Â The Freeport terminal accounted for about 20% of all U.S. nat-gas exports before the explosion on June 8 knocked it offline. Â The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower-48 U.S. states. Â 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.
As a longer-term bullish factor, the ongoing drought in the U.S. West has drained rivers and reservoirs, with Lake Mead and Lake Powell falling to record lows. Â That threatens to curb power produced by hydropower dams and will prompt electric utilities in the U.S. West to boost usage of nat-gas to increase electricity to satisfy power demand for air-conditioning this summer. Â The U.S. Energy Information Administration said on June 1 that the drought could drive down generation at California's hydro dams between June and September to 7 million megawatt-hours, well below the 13 million megawatt-hour median for summer generation between 1980 and 2020.
Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +77 bcf to 2,771 bcf in the week ended Sep 9, above expectations of a +73 bcf increase. Â Inventories remain tight, however, and are down -7.8% y/y and -11.3% below their 5-year seasonal average.
Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended Sep 9 rose by +4 rigs to a new 3-year high of 166 rigs. Â Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).
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