Nat-Gas Prices Jump on Smaller Inventory Build and Colder U.S. Temps

Dec Nymex natural gas (NGZ22) on Thursday closed up +0.374 (+6.38%).

Dec nat-gas Thursday closed sharply higher after weekly EIA nat-gas inventories rose less than expected.  The EIA reported that nat-gas inventories rose +79 bcf last week, below expectations of +81 bcf.  Also, prices gained on the outlook for colder weather to move into the U.S. next week that would boost heating demand for nat-gas.  The Commodity Weather Group said that below-normal temperatures are expected across the lower 48 U.S. states from November 13-23.  

Lower-48 state dry gas production on Thursday was 100 bcf (+3.9% y/y), mildly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state total gas demand Thursday was 69 bcf/day, down -0.6% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Thursday was 11.5 bcf/day, up +3.7% w/w, according to BNEF.

A bearish factor for nat-gas prices is speculation about a delayed restart of the Freeport LNG export terminal that would increase U.S. nat-gas inventories.  The Freeport LNG export terminal was knocked offline by an explosion on June 8.  Last month, the terminal said tentatively it would reopen on Nov 21.  The Freeport terminal normally accounts for about 20% of all U.S. nat-gas exports and receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.

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 Nov 5 fell -1.3% y/y to 69,293 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Nov 5 rose +2.0% y/y to 4,113,504 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.

Thursday's weekly EIA report was bullish for nat-gas prices since it showed U.S. nat gas inventories rose +79 bcf in the week ended Nov 4, below expectations of +81 bcf, although well above the 5-year seasonal average gain of +20 bcf.  Inventories remain tight and are -2.1% 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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