Nat-Gas Prices Rally Sharply on Larger-than-Expected Draw in Weekly EIA Inventories

March Nymex natural gas (NGH23) on Thursday closed up +0.140 (+6.44%).

Mar nat-gas on Thursday moved sharply higher after weekly EIA nat-gas inventories fell more than expected.  Thursday's weekly EIA inventory report showed U.S. nat-gas inventories fell -71 bcf last week, a bigger draw than expectations of -62 bcf.

Lower-48 state dry gas production on Thursday was 99.9 bcf (+7.4% y/y), moderately below the record high of 03.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Thursday was 86.4 bcf/day, down -13.7% y/y, according to BNEF.  On Thursday, LNG net flows to U.S. LNG export terminals were 11.8 bcf/day, down -11.2% w/w.

Nat-gas prices have fallen sharply over the past three months and posted a 2-1/4 year nearest-futures low Wednesday as normally mild weather across the northern hemisphere erodes heating demand for nat-gas.  January was the sixth-warmest across the contiguous 48 U.S. states in data from 1895.  This winter's warm temperatures have caused rising nat-gas inventories in Europe and the U.S., with gas storage across Europe currently 64% full as of Feb 20, far above the 5-year seasonal average of 43%.  Also, U.S. nat-gas inventories are +15.2% above their 5-year average as of Feb 17, the most in 2-1/2 years.

Analytics Group said in a recent note to clients that nat-gas prices face "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 positive factor is the partial reopening of the Freeport LNG export terminal, which is boosting U.S. nat-gas exports.  The resumption of nat-gas exports from Freeport will curb U.S. gas inventory builds and is bullish for prices.

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 Thursday that total U.S. electricity output in the week ended Feb 18 fell -4.7% y/y to 75,037 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Feb 18 rose +1.6% y/y to 4,107,853 GWh.

Thursday's weekly EIA report was bullish for nat-gas prices since it showed U.S. nat gas inventories fell -71 bcf, more than expectations of -62, but a much smaller draw than the 5-year average draw of -177 bcf for this time of year.  Nat-gas inventories are now +15.2% above their 5-year seasonal average, the most in 2-1/2  years.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended Feb 17 rose by +1 to 151 rigs, 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).
 

• Crude Climbs on Forecast for Record Crude Oil Consumption in India
• Nat-Gas Prices Bounce Higher on Fund Short Covering
• Crude Oil Under Pressure on Concern about Hawkish Fed
• Nat-Gas Prices Sink as Above-Normal Winter Temps Boost Global Gas Storage