Nat-Gas Prices Gain as Iran Attacks Key Energy Infrastructure

April Nymex natural gas (NGJ26) on Tuesday closed up +0.010 (+0.33%).

Nat-gas prices settled slightly higher on Tuesday, gaining on carryover support from a +1% rally in European nat-gas prices on supply concerns after operations were suspended at the Shah gas field in the United Arab Emirates when an Iranian drone struck it.  

Nat-gas prices gave up most of their advance on Tuesday amid warming US weather forecasts, potentially curbing nat-gas heating demand.  The Commodity Weather Group said Tuesday that forecasts shifted warmer, with above-average temperatures expected across the western half of the US through March 26.  

Nat-gas prices surged to a 3-year high earlier this month due to the war in Iran.  On March 2, Qatar shut its Ras Laffan plant, the world's largest natural gas export facility, after it was targeted by an Iranian drone attack.  The Ras Laffan plant accounts for about 20% of global liquefied natural gas supply, and its closure 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.

US (lower-48) dry gas production on Tuesday was 112.1 bcf/day (+4.2% y/y), according to BNEF.  Lower-48 state gas demand on Tuesday was 103.7 bcf/day (+30.7% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Tuesday were 20.0 bcf/day (+1.7% w/w), according to BNEF.

Projections for higher US nat-gas production are bearish for prices.  On February 17, the EIA raised its forecast for 2026 US dry nat-gas production to 109.97 bcf/day from last month's estimate of 108.82 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs posting a 2.5-year high last Friday.

As a positive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended March 7 rose +1.00% y/y to 78,133 GWh (gigawatt hours).  Also, US electricity output in the 52-week period ending March 7 rose +1.69% y/y to 4,309,018 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices, as nat-gas inventories for the week ended March 6 fell by -38 bcf, a smaller draw than the market consensus of -41 bcf and the 5-year weekly average draw of -64 bcf.  As of March 6, nat-gas inventories were up +8.8% y/y and -0.9% below their 5-year seasonal average, signaling near-normal nat-gas supplies.  As of March 15, gas storage in Europe was 29% full, compared to the 5-year seasonal average of 42% 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 March 13 rose by +1 to 133 rigs, just below the 2.5-year high of 134 rigs from February 27.  In the past 17 months, the number of gas rigs has risen from the 4.75-year low of 94 rigs reported in September 2024.