Nat-Gas Prices Plunge on Warm Temps in the Northern Hemisphere

Feb Nymex natural gas (NGG23) on Tuesday closed down -0.487 (-10.88%).

Feb nat-gas Tuesday plunged to an 11-month nearest-futures low on above-normal temperatures across the northern hemisphere, reducing heating demand for nat-gas in Europe and the U.S.  The National Oceanic and Atmospheric Administration (NOAA) expects above-normal temperatures for most of Europe over the next two weeks and for the U.S. through mid-January.  The warm temperatures this winter have caused rising European nat-gas inventories, with gas storage across Europe currently 84% full, far above the 5-year average for this time of year of 70%.  

Lower-48 state dry gas production on Tuesday was 100.2 bcf (+5.6% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Tuesday was 79.2 bcf/day, down sharply by -29.9% y/y due to above-normal temperatures, according to BNEF.  LNG net flow to U.S. LNG export terminals Tuesday was 11.1 bcf/day, up +2.8% w/w.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers.  The Edison Electric Institute reported last Thursday that total U.S. electricity output in the week ended Dec 24 rose +16.5% y/y to 89,032 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending Dec 24 rose +2.6% y/y to 4,135,818 GWh.

In a bearish factor, the Freeport LNG export terminal said on Dec 23 that it doesn't expect to restart its facility "until the second half of January at the earliest."  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 bullish for nat-gas prices since it showed U.S. nat gas inventories fell -213 bcf in the week ended Dec 23, a bigger decline than expectations of -198 bcf.  Nat-gas inventories are -2.7% 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 30 rose by +1 to 156 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 Tumbles on Dollar Strength while Nat-Gas Plunges on Warm Temps
• Nat-Gas Prices Fall as Warm U.S. Temps Undercut Heating Demand
• Crude Gains on Dollar Weakness and Chinese Energy Demand Optimism
• Nat-Gas Prices Under Pressure on Above-Normal U.S. Temps