Nat-Gas Prices Slide on Forecasts for Mild U.S. Temps

Oct Nymex natural gas (NGV22) on Friday closed down by -0.261 (-3.68%).

Oct nat-gas Friday tumbled to a 2-1/4 month low and closed sharply lower on forecasts for milder U.S. temperatures, which would reduce nat-gas demand from electricity providers to run air-conditioning.  Forecaster Atmospheric G2 said Friday that cooler-than-normal temperatures are expected for the U.S. Northeast and Southeast from September 28-October 2.  Also, predominantly mild temperatures are expected across the U.S. from October 3-7.

Nat-gas prices were also undercut by concern about a global recession and Friday's sharp rally in the dollar index.

Lower-48 state total gas production on Friday was 98.8 bcf, up +5.2% y/y.  Lower-48 state total gas demand on Friday was 68.7 bcf/day, up +9.3% y/y.  LNG net flow to U.S. LNG export terminals Friday was 11.3 bcf/day, down -4.3% 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.

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 Friday that the number of active U.S. nat-gas drilling rigs in the week ended Sep 23 fell by -2 rigs to 160, falling back slightly 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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