Nat-Gas Prices Fall as Smaller US LNG Exports Boost Domestic Supplies

June Nymex natural gas (NGM26) on Wednesday closed down -0.058 (-2.08%).

Nat-gas prices settled lower for a second day on Wednesday on concerns that a decline in US LNG exports will lead to higher US nat-gas inventories.  On Wednesday, nat-gas flows to US liquefied natural gas (LNG) export terminals fell to the lowest level in more than three months, leaving more supplies in the domestic market.  According to BNEF data, LNG flows to US Gulf coast export terminals fell to 17.7 bcf on Wednesday, the lowest since late January, due to seasonal maintenance.  The larger domestic nat-gas supplies could boost US storage levels that are already +7.7% above their five-year average as of April 24.

Negative carryover from Wednesday's -7% plunge in WTI crude oil prices also weighed on nat-gas prices, as hopes for an end to the US-Iran war raised the possibility of the reopening of the Strait of Hormuz.

On Monday, nat-gas prices rallied to a 1-month nearest-futures high on the outlook for below-normal US temperatures in the near term, which could potentially boost nat-gas heating demand.  

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.  

On April 17, 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.

US (lower-48) dry gas production on Wednesday was 110.9 bcf/day (+5.5% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 72.2  bcf/day (+9.5% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 17.7 bcf/day (-7.8% 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 May 2 rose +0.1% y/y to 74,475 GWh (gigawatt hours), and US electricity output in the 52 weeks ending May 2 rose +1.7% y/y to 4,327,807 GWh.

The consensus is that Thursday's weekly EIA nat-gas inventories rose +72 bcf in the week ended May 1, below the five-year average for the week of +77 bcf.

Last 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 May 3, gas storage in Europe was 34% full, compared to the 5-year seasonal average of 46% 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 May 1 rose by +1 to 130 rigs, 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.