Nat-Gas Prices Surge on Colder U.S. Forecasts

Dec Nymex natural gas (NGZ22) on Monday closed up +0.544 (+8.50%).

Dec nat-gas rallied sharply to a 1-1/2 month high on Monday on the outlook for colder U.S. temperatures to engulf the country, which would boost heating demand for nat-gas.  The U.S. Climate Prediction Center said Monday that below-normal temperatures are expected across the lower 48 U.S. states from November 12-20.

Lower-48 state dry gas production on Monday was +100 bcf (+3.6% y/y), mildly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state total gas demand Monday was 70.1 bcf/day, down -1.7% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Monday was 11.9 bcf/day, down -1.6% w/w, according to BNEF.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported last Wednesday that total U.S. electricity output in the week ended Oct 29 fell -0.6% y/y to 68,883 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Oct 29 rose +2.1% y/y to 4,114,400 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 Jun 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 Nov 21.

Last Thursday's weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories rose +107 bcf in the week ended Oct 28, above expectations of +102 bcf and well above the 5-year seasonal average gain of +45 bcf.  Inventories remain tight and are -3.7% 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 Nov 4 fell by -1 rig to 155 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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