Nat-Gas Prices Sink on Above-Normal Winter Temps

Feb Nymex natural gas (NGG23) on Friday closed down -0.276 (-7.47%).

Feb nat-gas Friday tumbled to a new 1-1/2 year nearest-futures low.  Prices are under pressure on expectations for warm U.S. weather to reduce heating demand for nat-gas.  Forecaster Atmospheric G2 said Friday that well above-average temperatures are expected across the eastern two-thirds of the U.S. through January 22.  In addition, a slump in European nat-gas prices to a 14-month low Friday also weighed on U.S. nat-gas prices.

Nat-gas prices have fallen sharply over the past month 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 the end of this month.  The warm temperatures this winter have caused rising European nat-gas inventories, with gas storage across Europe currently 82% full as of Thursday, 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 June 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 Friday was 100.8 bcf (+6.0% y/y), modestly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Friday was 93.0 bcf/day, up by +0.4% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Friday was 12.8 bcf/day, up +1.5% 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 Friday that the number of active U.S. nat-gas drilling rigs in the week ended Jan 13 fell by -2 to 150 rigs, an 8-month low and 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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