Nat-Gas Slightly Higher as Arctic Cold Engulfs the U.S.

Jan Nymex natural gas (NGF23) on Wednesday closed up by +0.006 (+0.11%).

Jan nat-gas Wednesday closed slightly higher.  Some short-covering emerged Wednesday on the outlook for increased heating demand for nat-gas as forecasts are calling for well below-normal temperatures across most of the U.S. this week.  The Commodity Weather Group Wednesday said that temperatures in the Midwest and East are now seen even lower than previously expected over the next five days.  However, price gains were limited by the outlook for abnormally mild temperatures for most of the U.S. from Dec 30-Jan 3, which will reduce heating demand for nat-gas.  

Lower-48 state dry gas production on Wednesday was 98.7 bcf (+2.0% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Wednesday was 105.6 bcf/day, up +6.4% y/y, according to BNEF.  On Wednesday, LNG net flow to U.S. LNG export terminals was 13.1 bcf/day, up +0.9% w/w and the most in more than 6 months.

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 17 rose +3.5% y/y to 78,653 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending Dec 17 rose +2.2% y/y to 4,123,236 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.

The consensus is for Thursday's weekly EIA nat-gas inventories to fall -91 bcf.

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).

• Crude Gains on a Bigger-Than-Expected Drop in EIA Crude Inventories
• Nat-Gas Closes Sharply Lower on Expectations for Milder U.S. Temps
• Crude Modestly Higher as the Dollar Weakens
• Nat-Gas Prices Plunge on the Outlook for Warmer U.S. Temps