Nat-Gas Prices Slump on Concern U.S. Nat-Gas Inventories May Climb

Dec Nymex natural gas (NGZ22) on Friday closed down -0.360 (-5.77%).

Dec nat-gas Friday erased an early rally and moved sharply lower on concern a further delay of the restart of the Freeport LNG export terminal will lead to an increase in U.S. nat-gas inventories.  The Freeport LNG export terminal was knocked offline by an explosion on June 8.  The export facility said tentatively it would reopen on Nov 21, but it has yet to announce if all the repairs to the terminal are completed, fueling speculation the restart will be further delayed.  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.

Another bearish factor Friday was negative carry-over from a fall in European nat-gas prices Friday to a 2-week low.

Nat-gas prices Friday initially moved higher on the outlook for colder weather to move into the U.S. 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 Friday was 99.6 bcf (+379% 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 72.7 bcf/day, up +3.7% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Friday was 12.1 bcf/day, up +7.1% 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 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 Friday that the number of active U.S. nat-gas drilling rigs in the week ended Nov 11 were unchanged at 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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