Nat-Gas Prices Fall on Rise in Weekly Nat-Gas Inventories

Oct Nymex natural gas (NGV22) on Thursday closed down by -0.690 (-8.87%).

Oct nat-gas Thursday sold off sharply and posted a 2-1/4 month low.  A larger-than-expected build in weekly nat-gas stockpiles sent prices tumbling.  The EIA Thursday reported nat-gas inventories rose +103 bcf, above expectations for a build of +95 bcf and well above the 5-year average of +81 bcf.  

Nat-gas prices Thursday also fell on forecasts for cooler U.S. temperatures that will curb nat-gas demand from electricity providers to run air-conditioning.  Forecaster Maxar Technologies said Thursday that below-normal temperatures are expected for the eastern U.S. from September 27-October 1.

Lower-48 state total gas production on Thursday was 98.7 bcf, up +5.7% y/y.  Lower-48 state total gas demand on Thursday was 66.9 bcf/day, up +4.8% y/y.  LNG net flow to U.S. LNG export terminals Thursday was 11.4 bcf/day, down -1.7% 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.

Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +103 bcf to 2,874 bcf in the week ended Sep 16, above expectations of a +95 bcf increase and above the  5-year average of +81 bcf.  However, inventories remain tight and are down -6.7% y/y and -10.4% 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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