Nat-Gas Prices Slump as Weekly EIA Inventories Fall Less than Expected

March Nymex natural gas (NGH23) on Thursday closed down -0.082 (-3.32%).

Mar nat-gas Thursday settled sharply lower after weekly EIA nat-gas supplies fell less than expected.  The EIA today reported that weekly U.S. nat-gas inventories fell -100 bcf, a smaller draw than expectations of -108 bcf.  A mixed weather forecast may curb heating demand for nat-gas and weighs on prices.  Forecaster Maxar Technologies said record cold is expected in the Northwest by the end of the Feb 21-25 period, with abnormally mild conditions for the Southeast.

A positive factor is the partial reopening of the Freeport LNG export terminal, which is boosting U.S. nat-gas exports.  Estimated gas flows to U.S. LNG export terminals Tuesday were seen reaching 13.5 bcf, up +10.5% w/w and the highest since last March.  The resumption of nat-gas exports from Freeport will curb U.S. gas inventory builds and is bullish for prices.

Lower-48 state dry gas production on Thursday was 99.9 bcf (+4.2% 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 84.9 bcf/day, up +5.4% y/y, according to BNEF.  On Thursday, LNG net flows to U.S. LNG export terminals were 13.3 bcf/day, up +5.6% w/w.

Nat-gas prices fell sharply over the past two months to a 2-year low on Feb 3 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 66% full as of Feb 13, far above the 5-year seasonal average of 46%.  Also, U.S. nat-gas inventories are +8.8% above their 5-year average as of Feb 10.

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 11 fell -5.3% y/y to 75,319 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Feb 11 rose +1.5% y/y to 4,111,588 GWh.

Thursday's weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories fell -100 bcf, less than expectations of -108 and a much smaller draw than the 5-year average draw of -166 bcf for this time of year.  Nat-gas inventories are now +8.8% above their 5-year seasonal average, the most in 2 years.

Baker Hughes reported last 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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