The Outlook for an Expanding Storage Surplus Weighs on Nat-Gas Prices

May Nymex natural gas (NGK26) on Tuesday closed down -0.028 (-1.07%).

Nat-gas prices continued their 5-week selloff on Tuesday, dropping to a 17-month low.  Forecasts for above-normal temperatures that reduce nat-gas heating demand and expand US gas storage levels are weighing on prices.  The Commodity Weather Group said that above-average temperatures are expected across the eastern two-thirds of the US through April 17, with seasonally normal weather expected across the US from April 18-27.

Projections for higher US nat-gas production are bearish for prices.  Last Tuesday, the EIA raised its forecast for 2026 US dry nat-gas production to 109.59 bcf/day from a March estimate of 109.49 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs posting a 2.5-year high in late February.

US (lower-48) dry gas production on Tuesday was 110.8 bcf/day (+2.2% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 67.0 bcf/day (-1.4% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 19.7 bcf/day (+3.7% w/w), according to BNEF.

Nat-gas prices have some medium-term support on the outlook for tighter global LNG supplies.  On March 19, Qatar reported "extensive damage" at the world's largest natural gas export plant at Ras Laffan Industrial City.   Qatar said the attacks by Iran damaged 17% of Ras Laffan's LNG export capacity,  a damage that will take three to five years to repair.   The Ras Laffan plant accounts for about 20% of global liquefied natural gas supply, and a reduction in its capacity could boost US nat-gas exports.  Also, the closure of the Strait of Hormuz due to the war in Iran has sharply curtailed nat-gas supplies to Europe and Asia.

As a positive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended April 4 rose +2.3% y/y to 76,196 GWh (gigawatt hours).  Also, US electricity output in the 52 weeks ending April 4 rose +1.88% y/y to 4,323,222 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices, as nat-gas inventories for the week ended April 3 rose by +50 bcf, above expectations of +48 bcf and well above the 5-year weekly average of +13 bcf.  As of April 3, nat-gas inventories were up +4.4% y/y, and +4.8% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of April 12, gas storage in Europe was 30% full, compared to the 5-year seasonal average of 42% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending April 10 fell by -3 to 127, modestly below the 2.5-year high of 134 rigs from February 27.  In the past 17 months, the number of gas rigs has risen from the 4.75-year low of 94 rigs reported in September 2024.