Nat-Gas Prices Sink on Forecasts for Cold U.S. Temps to Moderate

Jan Nymex natural gas (NGF23) on Friday closed down -0.370 (-5.31%).

Jan nat-gas prices Friday fell sharply on expectations for warmer-than-expected U.S. temperatures, which would reduce heating demand for nat-gas.  The Commodity Weather Group said that the eastern half of the U.S. is looking less cold than previously expected for the week beginning Dec 26.  Nat-gas prices were also weighed down from a slump in European nat-gas prices Friday to a 3-1/2 week low.

Lower-48 state dry gas production on Friday was 97.6 bcf (+1.3% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Friday was 96.2 bcf/day, up +24% y/y, according to BNEF.  On Friday, LNG net flow to U.S. LNG export terminals was 12.9 bcf/day, up +4.5% 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 Jun 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 Friday that the number of active U.S. nat-gas drilling rigs in the week ended Dec 16 rose by +1 to 154 rigs, 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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