Nat-Gas Prices Rebound on Colder U.S. Weather Forecasts

Jan Nymex natural gas (NGF23) on Wednesday closed up +0.254 (+4.64%).

Jan nat-gas Wednesday recovered from early losses and closed sharply higher on updated weather forecasts calling for colder-than-expected U.S. temperatures that would boost heating demand for nat-gas.  The Commodity Weather Group on Wednesday said that below-normal temperatures will push from the West across the U.S. by Dec 15 and persist through Dec 21.

Lower-48 state dry gas production on Wednesday was 99.0 bcf (+2.6% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Wednesday was 80.9 bcf/day, down -20% y/y, according to BNEF.  On Wednesday, LNG net flow to U.S. LNG export terminals was 11.5 bcf/day, down -6% 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 Dec 3 rose +2.0% y/y to 75,205 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending Dec 3 rose +2.1% y/y to 4,121,681 GWh.

In a bearish factor, the Freeport LNG export terminal said December 2 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.  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.

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 consensus is for Thursday's weekly EIA nat-gas inventories to fall -31 bcf.

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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