Nat-Gas Falls Back on Weather Forecasts

Dec Nymex natural gas (NGZ22) on Friday closed down -0.066 (-1.04%).

Dec nat-gas Friday fell back on some long liquidation pressure after the sharp overall rally of +8.3% seen on Monday through Thursday.  Friday's selling was sparked by warmer weather forecasts.  Maxar said Friday that warmer-than-normal weather is expected in the western half of the U.S. during Nov 23-28.  However, Maxar said below-usual temperatures are expected for the Northeast.  Forecaster Atmospheric G2 said Thursday that temperatures are expected to be well below normal over the eastern half of the U.S. from Nov 21-26.

The Freeport LNG export terminal said Friday that the projected restart of the facility would be mid-December, with "initial production" to begin in mid-December.  The facility expects to be producing about 2 bcf of LNG daily by January and resume full operations by March 2023.  The facility has been closed since an explosion on June 8.  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.  The closure of the facility has been bearish for nat-gas prices since the reduction in LNG exports has put upward pressure on U.S. nat-gas inventories.

Lower-48 state dry gas production on Thursday was 99.2 bcf (+4.3% y/y), mildly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Current below-normal temperatures have boosted heating demand for nat-gas as lower-48 state total gas demand Thursday was 97.3 bcf/day, up +32.1% y/y and the most eight months, according to BNEF.  LNG net flow to U.S. LNG export terminals Thursday was 12.5 bcf/day, up +13.3% 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 Nov 12 rose +1.7% y/y to 70,667 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending Nov 12 rose +2.1% y/y to 4,114,661 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 +64 bcf in the week ended Nov 11, below expectations of +66 bcf, although well above the 5-year seasonal average gain of +5 bcf.  Inventories have recovered and are now only -0.2% 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 18 rose +2 rigs to 157 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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