Nat-Gas Prices Drop on Signs of Larger US Domestic Supplies

July Nymex natural gas (NGN26) on Tuesday fell -0.012 (-0.38%).

Nat-gas prices settled lower on Tuesday for a second session, as US LNG export volumes fell due to seasonal maintenance, boosting US domestic nat-gas supplies.  Flows to US LNG export terminals on Tuesday fell to 16.9 bcf, the lowest in two weeks. 

Losses in nat-gas prices are limited amid forecasts of hotter US weather, potentially boosting nat-gas demand from electricity providers to meet the expected increase in air-conditioning use.  The Commodity Weather Group on Tuesday said that above-average temperatures are expected across the Midwest and interior West through June 11. 

The outlook for the Strait of Hormuz to remain closed for the foreseeable future is supportive of nat-gas prices, as the closure has curbed Middle Eastern nat-gas exports, potentially boosting US nat-gas exports to offset the shortfall. 

US (lower-48) dry gas production on Tuesday was 109.1 bcf/day (+1.9% y/y), according to BNEF. Lower-48 state gas demand on Tuesday was 69.3 bcf/day (+4.8% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 16.9 bcf/day (-7.2% w/w), according to BNEF.

Projections for higher US nat-gas production are negative for prices.  On May 12, the EIA raised its forecast for 2026 US dry nat-gas production to 110.61 bcf/day from an April estimate of 109.60 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.

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 last Thursday reported that US (lower-48) electricity output in the week ended May 23 rose +5.2% y/y to 81,890 GWh (gigawatt hours), and US electricity output in the 52 weeks ending May 23 rose +2.0% y/y to 4,335,116 GWh.

Last Thursday's weekly EIA report was bullish for nat-gas prices, as nat-gas inventories for the week ended May 2 rose by +92 bcf, below expectations of +96 bcf and the 5-year weekly average of +97 bcf.  As of May 22, nat-gas inventories were up +0.3% y/y, and +6.2% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of May 31, gas storage in Europe was 40% full, compared to the 5-year seasonal average of 54% 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 29 remained unchanged at 125 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.