Nat-Gas Moderately Lower as Weekly EIA Inventories Fall Less Than Expected

Jan Nymex natural gas (NGF23) on Thursday closed down -0.192 (-2.77%).

Jan nat-gas Thursday fell moderately and posted a 1-1/2 week low after weekly EIA nat-gas stockpiles fell less than expected.  The EIA reported that nat-gas inventories fell -81 bcf, less than expectations of an -85 bcf decline.  Losses in nat-gas prices were limited by forecasts for colder U.S. weather, which would boost heating demand for nat gas.  Forecaster Maxar Technologies said it expects below-normal temperatures across much of the U.S. from Dec 11-15.

Lower-48 state dry gas production on Thursday was 99.5 bcf (+3.5% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Thursday was 93.5 bcf/day, up +13.8% y/y, according to BNEF.  On Thursday, LNG net flow to U.S. LNG export terminals was 12.7 bcf/day, up +13.3% w/w.

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.

Thursday's weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories fell -81 bcf in the week ended Nov 25, a smaller decline than expectations of -85 bcf.  Moreover, inventories have recovered and are now only -2.4% 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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