Nat-Gas Prices Retreat on Abundant US Supplies

July Nymex natural gas (NGN26) on Friday fell -0.107 (-3.21%).

Nat-gas prices retreated on Friday amid abundant US stockpiles and reduced flows to export terminals, which will further boost US domestic supplies.  As of May 29, nat-gas inventories were +5.7% above their 5-year seasonal average, signaling adequate nat-gas supplies.  Also, net flows to US LNG export terminals on Friday were just above 17.0 bcf/day, near the lowest level in more than two weeks, which will boost domestic supplies further as seasonal maintenance continues to limit exports.

Forecasts for hot US weather are supportive of nat-gas prices, as warmer weather could boost nat-gas demand from electricity providers to meet the expected increase in air-conditioning use.  The Commodity Weather Group on Friday said that US weather forecasts shifted hotter, with above-average temperatures expected across the Midwest and Northeast through June 14. 

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 Friday was 110.4 bcf/day (+1.7% y/y), according to BNEF.  Lower-48 state gas demand on Friday was 70.6 bcf/day (-2.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Friday were 17.2 bcf/day (-5.8% 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 on Wednesday reported that US (lower-48) electricity output in the week ended May 30 rose +6.4% y/y to 81,619 GWh (gigawatt hours), and US electricity output in the 52 weeks ending May 30 rose +2.18% y/y to 4,340,023 GWh.

Thursday’s weekly EIA report was bullish for nat-gas prices, as nat-gas inventories for the week ended May 29 rose by +95 bcf, below expectations of +99 bcf and the 5-year weekly average of +101 bcf.  As of May 29, nat-gas inventories were down -0.8% y/y, and +5.7% above their 5-year seasonal average, signaling adequate nat-gas supplies.  As of June 3, gas storage in Europe was 41% full, compared to the 5-year seasonal average of 56% 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 June 5 fell by -1 to 124 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.