Nat-Gas Rallies on Colder Weather Forecasts

Dec Nymex natural gas (NGZ22) on Monday closed up +0.473 (+7.50%).

Dec nat-gas Monday rallied sharply on weather factors and technical buying, with the breakout to a new 2-week high.

Atmospheric G2 said that warmer-than-usual temperatures are expected in the central and eastern U.S. in the 5-day period starting Nov 26 but that the first week of December is now looking much colder than previous forecasts.

The Freeport LNG export terminal said on Nov 18 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 Monday was 100.7 bcf (+4.9% y/y), mildly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 total gas demand Monday was 95.2 bcf/day, up +20.2% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Monday was 12.4 bcf/day, up +1.2% 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 last 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.

Last 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 last 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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