Nat-Gas Prices Soar on Colder Weather Forecasts

Dec Nymex natural gas (NGZ22) on Monday closed up +0.671 (+11.81%).

Dec nat-gas on Monday soared as U.S. weather forecasts shifted colder, which would boost heating demand for nat-gas.  Forecaster Maxar Technologies said Monday that below-normal temperatures would descend into the central and eastern U.S. in the second week of November.  Stronger demand would exacerbate concerns about tight inventories and high U.S. LNG exports to Europe.

Lower-48 state dry gas production on Friday was 101.1 bcf (+4.4% y/y), mildly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state total gas demand Friday was 73.1 bcf/day, up +8% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Friday was 12.3 bcf/day, up +7.8% 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.

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 current projected opening date is November 21.

Last 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 28 fell by -1 rig to 156 rigs, which was below the 3-1/4 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).
 

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