Nat-Gas Prices Rebound as European Gas Prices Surge on Iran Risks

April Nymex natural gas (NGJ26) on Wednesday closed up +0.032 (+1.06%).

Nat-gas prices recovered from a 1.5-week low on Wednesday and settled higher.   Short covering emerged in nat-gas futures on Wednesday on carryover support from a +6% surge in European gas prices to a 1-week high after Iran threatened to attack energy infrastructure in Saudi Arabia, Qatar, and the UAE in retaliation for US and Israeli airstrikes on its South Pars gas field and its Asaluyeh oil industry facilities.

Nat-gas prices initially moved lower on Wednesday amid forecasts of warm US weather that will reduce nat-gas heating demand.  The Commodity Weather Group said Wednesday that forecasts shifted warmer with well-above-average temperatures expected across the western half of the US for the next two weeks.

Expectations for a larger-than-normal build in nat-gas storage also weighed on prices on Wednesday.  The consensus is that Thursday's EIA nat-gas inventories will climb by +39 bcf for the week ended March 13, well above the five-year average for this time of year of a -29 bcf decline.

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 Wednesday was 111.6 bcf/day (+4.7% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 94.2 bcf/day (+26.1% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 19.2 bcf/day (-2.4% 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 Wednesday that US (lower-48) electricity output in the week ended March 14 rose +4.1% y/y to 75,247 GWh (gigawatt hours).  Also, US electricity output in the 52-week period ending March 14 rose +1.7% y/y to 4,311,070 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.