Nat-Gas Prices Rebound as Hurricane Ian Enters Gulf of Mexico

Oct Nymex natural gas (NGV22) on Monday closed up by +0.075 (+1.10%).

Oct nat-gas Monday recovered from a 2-1/4 month low and settled moderately higher.  Nat-gas prices recovered early losses Monday and moved higher after Chevron and British Petroleum shut nat-gas platforms in the Gulf of Mexico ahead of Hurricane Ian.

Nat-gas prices Monday initially dropped to a 2-1/4 month low on the outlook for mild U.S. fall weather that will curb heating demand for nat-gas.  Forecaster Atmospheric G2 said Monday that above-average temperatures are seen across the central and western U.S. from October 1-5, with near-normal temperatures expected in the East.

Lower-48 state total gas production on Monday was 101 bcf, up +6.2% y/y.  Lower-48 state total gas demand on Monday was 64.8 bcf/day, up +15.9% y/y.  LNG net flow to U.S. LNG export terminals Monday was 11.6 bcf/day, up +1.4% 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 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.

Last 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 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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