Nat-Gas Plunges on the Outlook for Above-Normal Temps

Jan Nymex natural gas (NGF23) on Monday closed down -0.704 (-11.21%).

Jan nat gas Monday plunged to a 6-week nearest-futures low and closed sharply lower on the outlook for above-normal U.S. temperatures that would curb heating demand for nat-gas.  Forecaster Atmospheric G2 on Monday said that U.S. weather forecasts have trended "notably warmer across the eastern and central U.S. since last Friday,” with well above-normal temperatures seen east of the Rockies from Dec 10-14.

Nat-gas prices were already on the defensive from last Friday after the Freeport LNG export terminal said that it expects to restart its facility around year-end, a further delay from its previous indication of a mid-December restart.  The closure of the facility has been bearish for nat-gas prices since the reduction in LNG exports has boosted U.S. nat-gas inventories.

Lower-48 state dry gas production on Monday was 100.5 bcf (+3.8% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Monday was 85.8 bcf/day, up +10.4% y/y, according to BNEF.  On Monday, LNG net flow to U.S. LNG export terminals was 12.2 bcf/day, up +5.9% w/w.

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 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 said today that it expects to restart its facility around year-end, a further delay than expectations for a mid-December restart.   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.

Last 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 Friday that the number of active U.S. nat-gas drilling rigs in the week ended Dec 2 was unchanged at 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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