Nat-Gas Prices Fall on Record U.S. Production

Oct Nymex natural gas (NGV22) on Tuesday closed down by -0.252 (-3.65%).

Oct nat-gas prices Tuesday erased early gains and closed moderately lower on record U.S. nat-gas production on Tuesday.  Also, there is concern that Hurricane Ian will reduce demand for gas-fired electricity generation in the U.S Southeast.  In addition, mild U.S. fall temperatures will also reduce heating demand for nat-gas as the Commodity Weather Group Tuesday said it expects above-normal temperatures in the western and central U.S. from October 2-6, with normal temperatures expected in the East.  

Nat-gas prices Tuesday initially moved higher on positive carry-over from a +7% jump in European nat-gas prices.  European nat-gas prices soared Tuesday after Gazprom PJSC warned there is a risk Russia will sanction Ukraine's Naftogaz and prevent it from being able to pay transit fees, which would put at risk gas flows to Europe via Ukraine.

Lower-48 state total gas production on Tuesday was 99.5 bcf, up +4.4% y/y.  Lower-48 state total gas demand on Tuesday was 65.6 bcf/day, up +8.8% y/y.  LNG net flow to U.S. LNG export terminals Tuesday was a record 12.2 bcf/day, up +4.7% 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).
 

• Crude Jumps on Reports Russia Will Push for OPEC+ to Cut Output
• Nat-Gas Prices Rebound as Hurricane Ian Enters Gulf of Mexico
• Crude Oil Prices Pressured by a Soaring Dollar
• Nat-Gas Prices Slide on Forecasts for Mild U.S. Temps