Nat-Gas Prices Sink on a Rebuild of U.S. Inventories

Nov Nymex natural gas (NGX22) on Thursday closed down by -0.104 (-1.90%).

Nov nat-gas Thursday tumbled to a 6-1/2 month nearest-futures low after weekly EIA nat-gas inventories rose more than expected, easing supply concerns.  The EIA reported Thursday that U.S. nat-gas inventories rose +111 bcf last week, above expectations of +106 bcf.  Also, the outlook for warm U.S. temperatures that will reduce heating demand for nat-gas is bearish for prices.  The Commodity Weather Group expects above-normal temperatures across the central and eastern U.S. through Nov 2.

Lower-48 state total gas production on Thursday was 99.98 bcf, up +6% y/y.  BNEF data showed lower-48 state U.S. nat-gas production on Oct 3 climbed to a record high of 103.6 bcf.  Lower-48 state total gas demand Thursday was 74.0 bcf/day, up +19% y/y.  LNG net flow to U.S. LNG export terminals Thursday was 11.9 bcf/day, up +6.9% 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 15 fell -3.8% y/y to 70,244 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Oct 8 rose +2.0% y/y to 4,113,318 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.

In an underlying bullish factor, last month'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.

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 Jun 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 +111 bcf to 3,3421 bcf in the week ended Oct 14, above expectations of a +106 bcf increase and well above the 5-year average of +73 bcf.  However, inventories remain tight and are down -3.4% y/y and -5.2% 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 Oct 14 fell by -1 rig to 157, 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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