Nat-Gas Prices Climb on Forecasts for Colder U.S. Weather

Dec Nymex natural gas (NGZ22) on Tuesday closed up +0.101 (+1.70%).

Dec nat-gas on Tuesday posted moderate gains on the outlook for colder U.S. temperatures to boost heating demand for nat-gas.  The Commodity Weather Group said below-normal temperatures are expected across nearly all Lower 48 stares through Nov 18.  Also, another cold blast is expected in the Midwest and South toward the end of the month.

A bearish factor for U.S. nat-gas prices is the concern that 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 said Monday it would take longer than expected to reopen following an explosion on Jun 8.  The export facility said Monday it may need to remain closed through December to finish all repairs to the terminal, later than its earlier prediction of 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.

Lower-48 state dry gas production on Tuesday was 99.1 bcf (+2.7% y/y), mildly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state total gas demand Tuesday was 89.3 bcf/day, up +5.9% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Tuesday was 12.1 bcf/day, up +3.4% 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 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.

Last 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 11 was 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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