Nat-Gas Prices Rise as Frigid Temps Cut U.S. Production and Boost Demand

Feb Nymex natural gas (NGG23) on Tuesday closed up +0.138 (+2.77%).

Feb nat-gas Tuesday closed moderately higher.  Reduced U.S. nat-gas production due to freeze-offs from severe cold temperatures in the South supports prices.  However, gains are muted by forecasts for much milder U.S. temperatures later this week.    The Commodity Weather Group said above-normal temperatures are expected across most of et U.S. through Saturday and that abnormally-mild conditions are seen across the eastern half of the U.S. in the first week of January.

Lower-48 state dry gas production on Tuesday was 90.9 bcf (-8.1% y/y) due to freeze-offs of nat-gas wells in Texas.  U.S. nat-gas production rose to a record high of 103.6 bcf on Oct 3, according to BNEF.  Lower-48 state gas demand Tuesday was 105.6 bcf/day, up +25.9% y/y due to below-normal U.S. temperatures, according to BNEF.  On Tuesday, LNG net flow to U.S. LNG export terminals was 11.4 bcf/day, down -8.7% 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 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 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 -87 bcf in the week ended Dec 16, a smaller decline than expectations of -92 bcf.  Inventories have recovered and are now +0.7% above their 5-year seasonal average, the first time in more than 11 months that nat-gas inventories have risen above the 5-year average.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended Dec 23 rose by +1 to 155 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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