Nat-Gas Prices Climb as U.S. Weather Forecasts Shift Colder

Jan Nymex natural gas (NGF23) on Thursday closed up +0.239 (+4.18%).

Jan nat-gas prices Thursday rose sharply for the second day as U.S. weather forecasts shifted colder, which would increase heating demand for nat-gas.  Forecaster Atmospheric G2on Thursday said that Western U.S. states are poised to see abnormally-low temperatures from Dec 13-18, with the cold front expanding eastward to the rest of the U.S. in the following week.  Nat-gas prices Thursday rose even after weekly EIA nat-gas inventories fell only -21 bcf last week, a smaller draw than expectations of -28 bcf.

Lower-48 state dry gas production on Thursday was 99.4 bcf (+3.0% 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 83 bcf/day, down -15% y/y, according to BNEF.  On Thursday, LNG net flow to U.S. LNG export terminals was 11.5 bcf/day, down -11% 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 on Dec 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.

Thursday's weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories fell -21 bcf in the week ended Dec 2, a smaller decline than expectations of -28 bcf.  Moreover, inventories have recovered and are now only -1.6% 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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