Nat-Gas Prices Fall on Ample U.S. Nat-Gas Inventories

Feb Nymex natural gas (NGG23) on Thursday closed down -0.036 (-1.09%).

Feb nat-gas Thursday slipped to a 19-month nearest-futures low on a smaller-than-seasonal drop in weekly nat-gas supplies.  The EIA reported Thursday that weekly nat-gas inventories fell -82 bcf, more than expectations of -76 bcf but much less than the 5-year average for this time of year of -156 bcf.  Losses in nat-gas prices were limited after Maxar Technologies said colder-than-normal temperatures are expected across the western, central, and southern U.S. from Jan 24-28, which will boost heating demand for nat-gas.

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 last 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 Thursday was 100.9 bcf (+6.6% 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 86.5 bcf/day, down by -12% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Thursday was 12.5 bcf/day, down -1.2% w/w.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Thursday that total U.S. electricity output in the week ended Jan 14 fell -4.1% y/y to 77,445 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Jan 14 rose +2.3% y/y to 4,130,235 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 -82 bcf, more than expectations of -76 bcf but much less than the 5-year average for this time of year of -156 bcf.  Nat-gas inventories are +1.2% above 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 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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