Nat-Gas Closes Higher on U.S. Heat and Soaring European LNG Prices

July Nymex natural gas (NGN22) on Thursday closed up +0.044 (+0.59%).

Nat-gas prices Thursday posted moderate gains.  Nat-gas rallied Thursday on carry-over support from a surge in European gas prices.  European nat-gas prices jumped more than +3% Thursday, adding to a 46% increase already seen this week after Russia announced that it is curbing gas supplies by 60% via its Nord Stream pipeline to Germany.

Record-high temperatures in the U.S are also supportive of nat-gas prices as it boosts nat-gas demand from electricity providers to power the increased demand for air-conditioning.  Atmospheric G2 said Thursday that above-normal temperatures are expected in the Midwest, Plains, and South from June 21-25, and above-normal temperatures will cover most of the U.S. from June 26-30.

Nat-gas prices Tuesday plunged to a 5-week low on expectations for U.S. nat-gas inventories to build after a fire last week at the Freeport, Texas LNG terminal curtailed U.S. nat-gas exports.  The Freeport terminal said Tuesday that it is targeting 90 days for a partial restart, but a return to full operations isn't expected until later this year.  The 90-day timeline is much longer than the three weeks that were initially anticipated.  U.S. nat-gas inventories are likely to increase since exports will be limited.  The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.  

Nat-gas prices have support after Russia recently said that foreign buyers of its gas would need to open special ruble and foreign currency accounts to buy Russian gas.  Russia has already halted nat-gas shipments to Demark, Finland, Bulgaria, the Netherlands, and Poland and reduced supplies to Germany for not paying for Russian gas in rubles.

Stronger U.S. nat-gas production is bearish for prices as BNEF data showed lower-48 dry gas production Thursday at 95.4 bcf, up +4.4% y/y.

Above-normal temperatures in the U.S. have boosted domestic nat-gas demand is bullish for prices as BNEF data shows lower 48-state nat-gas demand Thursday was 71.4 bcf, up +10.3% y/y.

Strength in U.S. nat-gas exports is bullish for prices as BNEF data shows LNG net flows to U.S. LNG export terminals on Thursday was 11.2 bcf, up +5.4% w/w.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended June 11 fell -5.9% y/y to 81,976 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending June 11 rose +2.5% y/y to 4,091,334 GWh.

As a longer-term bullish factor, the ongoing drought in the U.S. West has drained rivers and reservoirs, with Lake Mead recently falling to a record low.  That threatens to curb power produced by hydropower dams and will prompt electric utilities in the U.S. West to boost usage of nat-gas to increase electricity to satisfy power demand for air-conditioning this summer.  The U.S. Energy Information Administration said on June 1 that the drought could drive down generation at California's hydro dams between June and September to 7 million megawatt-hours, well below the 13 million megawatt-hour median for summer generation between 1980 and 2020.

Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +92 bcf to 2,095 bcf in the week ended June 10, above expectations of +90 bcf and above the 5-year average of +79 bcf.  However, inventories remain tight and are down -13.7% y/y and -13.4% below their 5-year average.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended June 10 was unchanged at a 2-1/2 year high of 151 rigs.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).