Nat-Gas Prices Push Higher on Forecasts for Colder U.S. Weather

April Nymex natural gas (NGJ23) on Wednesday closed up +0.064 (+2.33%).

April nat-gas prices Wednesday recovered from early losses, rallied to a 1-month high, and settled moderately higher.  The outlook for colder temperatures toward the middle of the month pushed prices higher after forecaster Atmospheric G2 said below-normal temperatures are expected across the bulk of the lower-48 states from March 11-15.  Nat-gas prices Wednesday initially moved lower after above-normal temperatures were forecast across the southern half of the U.S. and New England from March 6-10.  

Lower-48 state dry gas production on Wednesday was 97.7 bcf (+3.6% y/y), moderately below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Wednesday was 83.8 bcf/day, up +3.5% y/y, according to BNEF.  On Wednesday, LNG net flows to U.S. LNG export terminals were 12.9 bcf/day, up +0.6% 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 Wednesday that total U.S. electricity output in the week ended Feb 25 fell -6.0% y/y to 74,362 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Feb 25 rose +1.3% y/y to 4,103,105 GWh.

The consensus is for Thursday's weekly EIA nat-gas inventories to fall -74 bcf.

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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