Nat-Gas Prices Surge on a Smaller-Than-Expected US Storage Build

June Nymex natural gas (NGM26) on Thursday closed up +0.120 (+4.53%).

Nat-gas prices rallied sharply on Thursday due to a smaller-than-expected build in nat-gas storage.  The EIA reported Thursday that nat-gas inventories rose by +79 bcf for the week ended April 24, below expectations of +83 bcf.

Nat-gas prices also have support on expectations of below-normal US temperatures, which could boost nat-gas heating demand.  The Commodity Weather Group said Thursday that below-average temperatures are expected across the eastern half of the US through May 4.

Last Friday, nat-gas prices tumbled to a 1.5-year nearest-futures low amid robust US gas storage.  EIA nat-gas inventories as of April 24 were +7.7% above their 5-year seasonal average, signaling abundant US nat-gas supplies.  

Projections for higher US nat-gas production are negative for prices.  On April 7, the EIA raised its forecast for 2026 US dry nat-gas production to 109.59 bcf/day from a March estimate of 109.49 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs posting a 2.5-year high in late February.

The outlook for the Strait of Hormuz to remain closed for the foreseeable future is supportive for nat-gas as the closure will curb Middle Eastern nat-gas supplies, potentially boosting US nat-gas exports to make up for the shortfall.  

US (lower-48) dry gas production on Thursday was 110.5 bcf/day (+3.2% y/y), according to BNEF.  Lower-48 state gas demand on Thursday was 74.7 bcf/day (+9.6% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Thursday were 18.6 bcf/day (-5.7% w/w), according to BNEF.

Nat-gas prices have some medium-term support on the outlook for tighter global LNG supplies.  On March 19, Qatar reported "extensive damage" at the world's largest natural gas export plant at Ras Laffan Industrial City.   Qatar said the attacks by Iran damaged 17% of Ras Laffan's LNG export capacity,  a damage that will take three to five years to repair.   The Ras Laffan plant accounts for about 20% of global liquefied natural gas supply, and a reduction in its capacity could boost US nat-gas exports.  Also, the closure of the Strait of Hormuz due to the war in Iran has sharply curtailed nat-gas supplies to Europe and Asia.

As a positive factor for gas prices, the Edison Electric Institute reported Wednesday that US (lower-48) electricity output in the week ended April 25 rose +0.7% y/y to 73,729 GWh (gigawatt hours), and US electricity output in the 52 weeks ending April 25 rose +1.76% y/y to 4,327,705 GWh.

Thursday's weekly EIA report was mixed for nat-gas prices, as nat-gas inventories for the week ended April 24 rose by +79 bcf, below expectations of +83 bcf, but well above the 5-year weekly average of +63 bcf.  As of April 24, nat-gas inventories were up +4.9% y/y, and +7.7% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of April 28, gas storage in Europe was 32% full, compared to the 5-year seasonal average of 45% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending April 24 rose by +4 to 129, modestly below the 2.5-year high of 134 rigs set on February 27.  In the past 19 months, the number of gas rigs has risen from the 4.75-year low of 94 rigs reported in September 2024.