Nat-Gas Prices Fall Back on the Outlook for Warmer U.S. Temps

Dec Nymex natural gas (NGZ22) on Wednesday closed down by -0.047 (-0.76%).

Dec nat-gas prices Wednesday posted moderate losses on expectations for warmer U.S. temperatures that would reduce heating demand for nat-gas.  The Commodity Weather Group said Wednesday that above-normal temperatures are expected for the Eastern U.S. from October 31 to November 9.  

Lower-48 state total gas production on Wednesday was 99 bcf, up +2.7% 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 Wednesday was 70 bcf/day, up +0.3% y/y.  LNG net flow to U.S. LNG export terminals Wednesday was 11.7 bcf/day, up +1.97%  w/w.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Oct 22 rose +2.2% y/y to 69,780 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending Oct 22 rose +2.1% y/y to 4,114,795 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.

The consensus is for Thursday's weekly EIA nat-gas inventories to climb +59 bcf.

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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