Nat-Gas Rallies Sharply on IEA Director's Comments

Nov Nymex natural gas (NGX22) on Tuesday closed up by +0.414 (+7.96%).

Nov nat-gas prices Tuesday rallied sharply to a three-session high.  Nat-gas prices rallied on comments Tuesday from the executive director of the International Energy Agency (IEA) in which he said nat-gas prices might increase significantly next year amid growing demand in Europe, a potential rebound in China's economy, and limited additional supply.  Nat-gas prices also received a boost from a slump in the dollar index Tuesday to a 2-1/2 week low.

Lower-48 state total gas production on Tuesday was 100.1 bcf, up +3.9% 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 Tuesday was 66.5 bcf/day, down -0.1% y/y.  LNG net flow to U.S. LNG export terminals Tuesday was 11.6 bcf/day, unchanged 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% by early 2023.  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.

Last 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 21 was unchanged at 157 rigs, 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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