Nat-Gas Prices Surge on Cold U.S. Weather Forecasts

Jan Nymex natural gas (NGF23) on Monday closed up +0.342 (+5.48%).

Jan nat-gas on Monday rallied sharply and posted a 1-week high.  Nat-gas prices surged on forecasts for cold temperatures to engulf the U.S., boosting heating demand for nat-gas.  The National Weather Service said well below-normal temperatures are expected across most of the lower 48 states from Dec 17-21.  Nat-gas prices fell back from their best levels Monday after the EIA forecasted that U.S. Jan shale gas output would climb to 96.28 bcf/day, up +535 mcf/day from Dec.

Lower-48 state dry gas production on Monday was 101.5 bcf (+5.3% 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 90.3 bcf/day, up +2.8% y/y, according to BNEF.  On Monday, LNG net flow to U.S. LNG export terminals was 12.4 bcf/day, up +8.8% 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 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.

Last 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 9 fell by -2 to 153 rigs, a 5-month low and moderately 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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