Nat-Gas Surges on Forecasts for Colder U.S. Temps

Dec Nymex natural gas (NGZ22) on Wednesday closed up +0.529 (+7.80%).

Dec nat-gas prices Wednesday surged to a 2-month high on the outlook for colder-than-normal temperatures in the U.S. that would boost heating demand for nat-gas.  Forecaster Atmospheric G2 said abnormally cold temperatures are seen for most of the U.S. in the five days starting Dec 3.  Technical buying helped prices go even higher Wednesday after nat-gas prices crossed above their 50-day and 100-day moving averages.  However, nat-gas prices fell back from their best levels after weekly EIA nat-gas inventories fell only -80 bcf, a smaller decline than expectations of -86 bcf.

Also, an +8% surge in European nat-gas prices Wednesday to a 2-1/2 week high provided carry-over support to U.S. prices after Russian gas exporter Gazprom PJSC said it might curb nat-gas shipments through Ukraine next week.  The Ukraine pipeline is the last remaining route for Russian gas to western Europe that is still operating.

The Freeport LNG export terminal on Nov 18 projected the restart of the facility for 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 Wednesday was 101.4 bcf (+4.6% y/y), just below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 total gas demand Wednesday was 82.1 bcf/day, down -9.9% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Wednesday was 12.1 bcf/day, down +3.3% 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 19 rose +7.0% y/y to 76,644 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending Nov 19 rose +2.1% y/y to 4,119,662 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.

Wednesday's weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories fell -80 bcf in the week ended Nov 18, a smaller decline than expectations of -86 bcf, although well above the 5-year average for the week of a -48 bcf draw.  Moreover, inventories have recovered and are now only -1.1% below their 5-year seasonal average.

Baker Hughes reported Wednesday that the number of active U.S. nat-gas drilling rigs in the week ended Nov 25 fell -2 rigs 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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