Nat-Gas Retreats as U.S. Weather Forecasts Shift Warmer

Dec Nymex natural gas (NGZ22) on Friday closed down -0.284 (-3.89%).

Dec nat-gas prices Friday fell sharply.  A warmer U.S. weather forecast that will curb heating demand for nat-gas is weighed on prices Friday after the Commodity Weather Group said that the Northeast is expected to see above-normal temperatures from Nov 30-Dec 4.

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 Friday was 102.9 bcf (+5.3% y/y), just below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 total gas demand Friday was 79.4 bcf/day, down -1.8% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Friday was 11.7 bcf/day, down -3.8% 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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