Nat-Gas Rallies on Partial Reopening of Freeport Export Terminal

March Nymex natural gas (NGH23) on Friday closed up +0.084 (+3.46%).

Mar nat-gas Friday closed sharply higher after Freeport LNG said it received federal permission to resume nat-gas exports from its recently repaired terminal and that it will resume some shipments on Saturday.   The Freeport LNG export terminal has been closed since an explosion on June 8 and has been a bearish factor for nat-gas prices since the reduction in LNG exports has boosted U.S. nat-gas inventories.

Lower-48 state dry gas production on Friday was 99.9 bcf (+4.6% y/y), moderately below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Friday was 87.2 bcf/day, unchanged y/y, according to BNEF.  On Friday, LNG net flows to U.S. LNG export terminals were 12.8 bcf/day, up +5.5% 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 +5.2% above their 5-year average as of Feb 3.

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 Friday that the number of active U.S. nat-gas drilling rigs in the week ended Feb 10 fell by -8 to 150 rigs, the fewest in 9 months 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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