Frigid US Weather Catapults Nat-Gas Prices to a 3-Year High

February Nymex natural gas (NGG26) on Thursday closed up by +0.170 (+3.49%),

Feb nat-gas prices extended this week's parabolic rally on Thursday, climbing to a 3-year nearest-futures high.  Natural gas prices have surged more than 60% over the last three days on forecasts of Arctic weather invading the US, boosting heating demand and potentially disrupting US gas production as water freezes in pipelines.   According to AccuWeather, a massive Arctic cold front will descend into the US as far south as Texas, bringing below-normal temperatures to more than 150 million people across 24 states.  

Also, the frigid conditions expected in Texas this weekend, where key gas production sites are located, and infrastructure is less hardened to cold weather, increase the risk of temporary outages and reduced nat-gas production.  On Thursday, Texas Governor Abbott issued disaster declarations for more than half the counties in the state ahead of the winter storm.

Nat-gas prices also received a boost on Thursday after weekly EIA nat-gas inventories fell more than expected.  The EIA reported that nat-gas supplies in the week ended January 16 fell -120 bcf, a much larger draw than expectations of -98 bcf.

Projections for lower US nat-gas production are supportive for prices.  The EIA last Tuesday cut its forecast for 2026 US dry nat-gas production to 107.4 bcf/day from last month's estimate of 109.11 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs recently posting a 2-year high.

US (lower-48) dry gas production on Thursday was 110.3 bcf/day (+9.0% y/y), according to BNEF.  Lower-48 state gas demand on Thursday was 112.6 bcf/day (-15.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Thursday were 19.7 bcf/day (+15.9% w/w), according to BNEF.

As a negative factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended January 10 fell -13.15% y/y to 79,189 GWh (gigawatt hours), although US electricity output in the 52-week period ending January 10 rose +2.5% y/y to 4,294,613 GWh.

Thursday's weekly EIA report was supportive for nat-gas prices, as nat-gas inventories for the week ended January 16 fell by -120 bcf, a larger draw than the market consensus of -98 bcf but smaller than the 5-year weekly average draw of -191 bcf.  As of January 16, nat-gas inventories were up +6.0% y/y and were +6.1% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of January 20, gas storage in Europe was 48% full, compared to the 5-year seasonal average of 63% 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 January 16 fell by -2 to 122 rigs, falling further below the 2.25-year high of 130 set on November 28.  In the past year, the number of gas rigs has risen from the 4.5-year low of 94 rigs reported in September 2024.