Nat-Gas Prices Plunge on the Outlook for Warmer U.S. Temps

Jan Nymex natural gas (NGF23) on Monday closed down sharply by -0.749 (-11.35%).

Jan nat-gas Monday plunged to a 1-week low on the outlook for warmer U.S temperatures next week, which would curb heating demand for nat-gas.   Researcher Atmospheric G2 said that well above-normal temperatures are expected across the eastern two-thirds of the U.S. from Dec 29-Jan 2.

Lower-48 state dry gas production on Monday was 99.3 bcf (+3.2% 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 104.7 bcf/day, up +7.6% y/y, according to BNEF.  On Friday, LNG net flow to U.S. LNG export terminals was 13.1 bcf/day, up +4.8% w/w.

A decline in U.S. electricity output is bearish 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 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.

Last 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 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 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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