Nat-Gas Prices Jump on a Frigid U.S. Weather Forecast

Jan Nymex natural gas (NGF23) on Thursday closed up +0.540 (+8.40%).

Jan nat-gas prices Thursday surged on expectations for a cold blast to engulf the U.S., which will boost heating demand for nat-gas.  Forecaster Atmospheric G2 said frigid weather is expected to generate well below-average temperatures across the eastern two-thirds of the U.S. from Dec 20-24.  Also, weekly EIA nat-gas inventories Thursday fell -50 bcf, slightly more than expectations of -49 bcf.

Lower-48 state dry gas production on Thursday was 98.6 bcf (+2.1% 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 93.1 bcf/day, up +19.7% y/y, according to BNEF.  On Thursday, LNG net flow to U.S. LNG export terminals was 12.9 bcf/day, up +7.8% w/w.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Dec 10 fell -1.5% y/y to 75,015 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Dec 10 rose +2.1% y/y to 4,120,552 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.

Thursday's weekly EIA report was slightly bullish for nat-gas prices since it showed U.S. nat gas inventories fell -50 bcf in the week ended Dec 9, a bigger decline than expectations of -49 bcf.  However, inventories have recovered and are now only -0.4% 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 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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