Nat-Gas Prices Sink on Bearish EIA Report and Delay in Reopening Freeport

Feb Nymex natural gas (NGG23) on Thursday closed down -0.452 (-10.83%).

Feb nat-gas prices Thursday plummeted to a 1-year nearest-futures low on a smaller-than-expected draw in weekly EIA nat-gas inventories.  Thursday's EIA report showed nat-gas inventories fell -221 bcf last week, a smaller draw than expectations of -240 bcf.  Gas prices were already on the defensive on forecasts for above-normal temperatures across most of the U.S. through the middle of this month, which will reduce heating demand for nat-gas.

Losses in nat-gas prices accelerated Thursday after a report from the Rapidian Energy Group said that the Freeport LNG export terminal, which has been closed since an explosion on Jun 8, will likely be offline "for several more months."  The report cited the delay in the "extensive personnel training" that is being required by federal regulators overseeing the restart of the terminal.  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 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.

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 Thursday was 99.6 bcf (+5.2% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Thursday was 86.6 bcf/day, down sharply by -14.3% y/y due to above-normal temperatures, according to BNEF.  LNG net flow to U.S. LNG export terminals Thursday was 12.5 bcf/day, up +8.4% w/w.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers.  The Edison Electric Institute reported Thursday that total U.S. electricity output in the week ended Dec 31 rose +9.8% y/y to 79,495 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending Dec 31 rose +2.8% y/y to 4,142,901 GWh.

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.

Thursday's weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories fell -221 bcf in the week ended Dec 30, a smaller decline than expectations of -240 bcf.  Nat-gas inventories are -5.7% 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).

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