Nat-Gas Falls on Expectations of Warmer December Temps

Jan Nymex natural gas (NGF23) on Wednesday closed down -0.305 (-4.22%).

Jan nat-gas on Wednesday tumbled to a 1-week low and closed sharply lower on forecasts for milder U.S. weather that would limit heating demand for nat-gas.  The Commodity Weather Group said the risks are for warmer weather in the East and Central to West U.S. from Dec 10-14, and forecaster NatGasWeather said "temperatures could warm above normal over much of the U.S. from Dec 8-15 as subfreezing air retreats to Canada."

Lower-48 state dry gas production on Wednesday was 100.8 bcf (+5.1% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 total gas demand Wednesday was 85.2 bcf/day, down -1.5% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Wednesday was 12.8 bcf/day, up +13.2% w/w and the most since June 7, the day before the fire shut the Freeport LNG export termnal in Texas.

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 26 rose +0.8% y/y to 72,870 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending Nov 26 rose +2.0% y/y to 4,120,220 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.

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 produce 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.

The consensus is for Thursday's weekly EIA nat-gas inventories to fall -86 bcf.

Last 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 last 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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