Nat-Gas Prices Climb on Escalation of Ukraine Conflict

Oct Nymex natural gas (NGV22) on Wednesday closed up by +0.062 (+0.80%).

Oct nat-gas Wednesday closed moderately higher.  Nat-gas prices Wednesday moved higher on concern an escalation of the war in Ukraine will further disrupt Russian nat-gas supplies after Russian President Putin announced a "partial mobilization" of Russian reserve troops in Ukraine.

Gains in nat-gas were limited Wednesday by the outlook for mild U.S. weather that will curb nat-gas demand from electricity providers to run air-conditioning.  Forecaster Atmospheric G2 said Wednesday that below-normal temperatures are expected for the eastern half of the U.S. from September 26-30.

Lower-48 state total gas production on Wednesday was 98.1 bcf, up +4.0% y/y.  Lower-48 state total gas demand on Wednesday was 68.1 bcf/day, up +7.9% y/y.  LNG net flow to U.S. LNG export terminals Wednesday was 11.5 bcf/day, up +3.3% w/w.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Sep 17 fell -4.0% y/y to 78,471 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Sep 17 rose +2.7% y/y to 4,122,237 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.

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.   The Freeport terminal accounted for about 20% of all U.S. nat-gas exports before the explosion on June 8 knocked it offline.  The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower-48 U.S. states.  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.

The consensus is for Thursday's weekly EIA nat-gas inventories to climb by +94 bcf.

Last 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.  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 16 fell by -4 rigs to 162, falling back from a 3-year high of 166 rigs the week ended Sep 9.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).
 

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