Nat-Gas Prices Rebound as European Gas Prices Surge

January Nymex natural gas (NGF25) on Tuesday closed higher by +0.094 (+2.92%)

Jan nat-gas prices on Tuesday recovered from early losses and settled moderately higher.  Short covering in nat-gas futures emerged Tuesday to push prices higher after European nat-gas prices surged more than +4% when the European Union said it has no interest in Russian gas, which could tighten European nat-gas supplies further and prompt increased demand for US nat-gas.  

Nat-gas price Tuesday initially moved lower as forecasts called for above-normal temperatures for the US through the rest of the year, which will reduce heating demand for nat-gas.   NOAA weather forecasts for the next 11-15 days call for unseasonably warm weather from Maine to California, with the upper Midwest featuring the most above-normal temperatures.  

Lower-48 state dry gas production Tuesday was 104.9 bcf/day (-1.0% y/y), according to BNEF.  Lower-48 state gas demand Tuesday was 91.9 bcf/day (+6.8% y/y), according to BNEF.  LNG net flows to US LNG export terminals Tuesday were 14.1 bcf/day (+7.7% w/w), according to BNEF.

An increase in US electricity output is positive for nat-gas demand from utility providers.  The Edison Electric Institute reported last Wednesday that total US (lower-48) electricity output in the week ended December 7 rose +10.87% y/y to 83,412 GWh (gigawatt hours), and US electricity output in the 52-week period ending December 7 rose +1.96% y/y to 4,173,295 GWh.

Last Thursday's weekly EIA report was bullish for nat-gas prices since nat-gas inventories for the week ended December 6 fell -190 bcf versus expectations of -168 bcf and a much larger draw than the 5-year average draw for this time of year of -71 bcf.  As of December 6, nat-gas inventories were up +2.3% y/y and were +4.6% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 81% full as of December 10, below the 5-year seasonal average of 83% 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 December 13 rose +1 rig to 103 rigs, modestly above the 3-1/2 year low from September 6 of 94 rigs.  Active rigs have fallen since posting a 5-1/4 year high of 166 rigs in Sep 2022, up from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).