Nat-Gas Prices Fall on Outlook for Warm U.S. Temps

Dec Nymex natural gas (NGZ22) on Thursday closed -0.244 (-3.99%).

Dec nat-gas prices Thursday fell on expectations for prolonged 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.  Maxar on Thursday forecasted warmer-than-normal weather for the Eastern half of the U.S. at least through Nov 10.

Nat-gas prices fell despite news that EIA nat-gas inventories rose by a smaller-than-expected amount of +52 bcf vs expectations of +61 bcf.

Lower-48 state dry gas production on Thursday was 100.3 bcf, up +3.7% y/y, and just below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state total gas demand Thursday was 73 bcf/day, up +5.1% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Thursday was 11.5 bcf/day, down -2.4% w/w, according to BNEF.

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 on 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 June 8 knocked it offline.  The Freeport LNG terminal normally 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 supportive for nat-gas prices since it showed U.S. nat gas inventories rose +52 bcf in the week ended Oct 21, less than expectations of +61 bcf and the 5-year seasonal average gain of +66 bcp.  Inventories remain tight and are -5.5% 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, which was below the 3-year high of 166 rigs posted in 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).
 

• Nat-Gas Prices Fall Back on the Outlook for Warmer U.S. Temps
• Crude Rallies on Dollar Weakness and Tight U.S. Fuel Supplies
• Nat-Gas Rallies Sharply on IEA Director's Comments
• Crude Oil Gains on Dollar Weakness and Strong Stocks