Nat-Gas Prices Surge on Forecasts for Colder U.S. Temps

April Nymex natural gas (NGJ23) on Monday closed up +0.183 (+7.18%).

April nat-gas on Monday rallied sharply on the outlook for colder U.S. temperatures to boost heating demand for nat-gas.  The Commodity Weather Group on Monday said that a cold blast currently sweeping through the western half of the U.S. is seen spreading to the Atlantic Coast by March 9-13.

Lower-48 state dry gas production on Monday was 100.6 bcf (+7.6% y/y), moderately below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Monday was 87.1 bcf/day, down -6.1% y/y, according to BNEF.  On Monday, LNG net flows to U.S. LNG export terminals were 12.4 bcf/day, down -3.8% w/w.

Nat-gas prices have fallen sharply over the past three months and posted a 2-1/4 year nearest-futures low last 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.  Gas storage across Europe was currently 64% full as of Feb 20, far above the 5-year seasonal average of 43%.  Also, U.S. nat-gas inventories were +15.2% above their 5-year average as of Feb 17, the most in 2-1/2 years.

A supportive factor is the partial reopening of the Freeport LNG export terminal, which was originally closed on June 8 due to an explosion.  The resumption of nat-gas exports from Freeport is helping to reduce U.S. 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 last 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.

Last 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 24 was unchanged at 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).

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