Nat-Gas Prices Fall as U.S. Inventories Recover

Nov Nymex natural gas (NGX22) on Friday closed down by -0.224 (-3.21%).

Nov nat-gas prices Friday closed sharply lower on negative carry-over from Thursday when weekly EIA nat-gas inventories rose more than expected, easing supply concerns.  U.S. nat-gas supplies are now down only -5.5% y/y, the smallest shortfall in 9 months.  Also, a decline in European nat-gas prices Friday to a 2-1/2 month low weighed on U.S. nat-gas prices.

Nov nat-gas prices on Monday tumbled to a 2-1/2 month low on record U.S. nat-gas production and reduced U.S. domestic nat-gas demand due to the power outages in the Southeast from Hurricane Ian.  BNEF data showed lower-48 state U.S. nat-gas production on Monday climbed to a record high of 103.6 bcf.

In an underlying bullish factor, last week's sabotage of the Nord Stream 1 undersea nat-gas pipeline and the massive leak under the Baltic Sea means there will be no near-term chance that Russia might reopen the pipeline to begin delivering gas to Europe again.  Prior to the explosions, Russia's state-owned gas company Gazprom had cut off the delivery of gas through that pipeline to Europe under the pretext of technical issues.

Lower-48 state total gas production on Friday was 101.2 bcf, up +6.5% y/y.  Lower-48 state total gas demand Friday was 67.7 bcf/day, up +3.3% y/y.  LNG net flow to U.S. LNG export terminals Friday was 11.1 bcf/day, down -11% 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 Oct 1 fell -5.6% y/y to 70,819 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Oct 1 rose +2.4% y/y to 4,121,579 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 +129 bcf to 3,106 bcf in the week ended Sep 30, above expectations of a +123 bcf increase.  However, inventories remain tight and are down -5.5% y/y and -7.8% 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 Oct 7 fell by -1 rig to 158, 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 Pushes Higher on the Outlook for Tighter Global Supplies
• Crude Closes Moderately Higher on Global Supply Concerns
• Nat-Gas Closes Higher on Forecasts for Below-Normal U.S. Temps
• Crude Prices Underpinned on OPEC+ Production Cuts