Nat-Gas Prices Moderately Lower on Expanding U.S. Nat-Gas Stockpiles

April Nymex natural gas (NGJ23) on Thursday closed down -0.046 (-1.64%).

April nat-gas on Thursday closed moderately lower.  A warmer-than-normal winter has allowed U.S. nat-gas stockpiles to build, weighing on prices.  Thursday's weekly EIA inventory report showed that nat-gas supplies fell -81 bcf, which was a bigger draw than expectations of -75 bcf but was well below the 5-year average for this time of year of -134 bcf.  That has allowed U.S. nat-gas inventories to build as they are now +19.3% above their 5-year average as of Feb 24, the most in 2-3/4 years.  Losses in nat-gas were limited after the Commodity Weather Group said a cold front sweeping across the western half of the U.S. is seen expanding into the bulk of the Lower-48 states through mid-March, boosting heating demand for nat-gas.

Lower-48 state dry gas production on Thursday was 99.2 bcf (+5.4% 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 84.2 bcf/day, up +1.3% y/y, according to BNEF.  On Thursday, LNG net flows to U.S. LNG export terminals were 13.5 bcf/day, up +8.7% w/w and the most in nearly a year.

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 61% full as of Feb 28, far above the 5-year seasonal average of 40%.  Also, U.S. nat-gas inventories were +19.3% above their 5-year average as of Feb 24, the most in 2-3/4 years.

A supportive factor is the partial reopening of the Freeport LNG export terminal, which was originally closed on Jun 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.

Thursday's weekly EIA report was mixed for nat-gas prices since it showed U.S. nat gas inventories fell -81 bcf, more than expectations of -75, but a much smaller draw than the 5-year average draw of -134 bcf for this time of year.  Nat-gas inventories are now +19.3% above their 5-year seasonal average, the most in 2-3/4  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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