Nat-Gas Prices Gain on Forecasts for Colder U.S. Temps

Feb Nymex natural gas (NGG23) on Thursday closed up +0.024 (+0.65%).

Feb nat-gas prices Thursday closed moderately higher on expectations for colder U.S temperatures later this month, which will boost heating demand for nat-gas.  Forecaster Maxar Technologies on Thursday said that below-normal temperatures are seen from the West to Midwest from Jan 22-26.  Nat-gas prices rallied Thursday despite a bearish EIA inventory report that showed nat-gas supplies unexpectedly rose +11 bcf last week versus expectations of a -12 bcf decline.

Feb nat-gas prices Wednesday sank to a 1-1/2 year nearest-futures low as abnormally mild weather across the northern hemisphere erodes heating demand for nat-gas.  The National Oceanic and Atmospheric Administration (NOAA) expects above-normal temperatures for most of Europe and 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%.

A negative factor for nat-gas prices is the continued closure of the Freeport LNG export terminal.  Last Thursday, the Rapidian Energy Group said that the Freeport LNG export terminal, 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.

Lower-48 state dry gas production on Thursday was 100.7 bcf (+6.7% 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 85.7 bcf/day, down by -12% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Thursday was 12.3 bcf/day, down -1.6% w/w.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Jan 7 fell -11.3% y/y to 73,106 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Jan 7 rose +2.4% y/y to 4,133,554 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 unexpectedly rose +11 bcf in the week ended Jan 6 versus expectations of a draw of -12 bcf.  The increase in nat-gas supplies is the first increase ever for this time of year.  Nat-gas inventories are -1.4% 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 Jan 6 fell by -4 to 152 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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