Nat-Gas Moderately Higher after Weekly EIA Inventories Fall More than Expected

March Nymex natural gas (NGH23) on Thursday closed up +0.034 (+1.42%).

Mar nat-gas Thursday closed moderately higher after the EIA reported that weekly U.S. nat-gas inventories fell -217 bcf last week, a larger draw than expectations of -201 bcf.  The upside in nat-gas prices appears limited in the near term on the outlook for warmer U.S. temperatures that will reduce heating demand for nat-gas.  Forecaster Maxar Technologies on Thursday said that the central and eastern U.S. would see warmer-than-normal temperatures through Feb 18.

Lower-48 state dry gas production on Thursday was 100.6 bcf (+5.7% y/y), moderately below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Thursday was 83.4 bcf/day, down by -6.0% y/y, according to BNEF.  On Thursday, LNG net flows to U.S. LNG export terminals were 13.1 bcf/day, up +5.2% w/w.

Nat-gas prices fell sharply over the past two months to a 2-year low last Friday as abnormally mild weather across the northern hemisphere erodes heating demand for nat-gas.  The warm temperatures this winter have caused rising nat-gas inventories in Europe and the U.S., with gas storage across Europe currently 69% full as of Feb 7, far above the 5-year seasonal average of 49%.  Also, U.S. nat-gas inventories are +6.7% above their 5-year average as of Jan 27, the most in two years.

Analytics Group said in a recent note to clients that nat-gas prices are facing "extended downside risks over the next 30-45 days" due to a combination of strong production, constrained export demand tied to the Freeport LNG terminal shutdown, growing inventory surpluses, and mild winter temperatures.

A negative factor for nat-gas prices is the continued closure of the Freeport LNG export terminal.  On Jan 12, 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" 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.

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 Feb 4 fell -0.6% y/y to 83,834 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Feb 4 rose +1.5% y/y to 4,115,800 GWh.

Thursday's weekly EIA report was bullish for nat-gas prices since it showed U.S. nat gas inventories fell -217 bcf, more than expectations of -201 and a larger draw than the 5-year average draw of -171 bcf for this time of year.  Nat-gas inventories are now +5.2% 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 Feb 3 fell by -2 to 158 rigs, modestly 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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