Nat-Gas Moderately Lower on Outlook for Rising Inventories

July Nymex natural gas (NGN22) on Tuesday closed down -0.136 (-1.96%).

Nat-gas prices Tuesday extended last Friday's losses down to a 6-week low.  Nat-gas prices moved lower on the outlook for rising U.S. nat-gas inventories due to reduced exports.  Freeport LNG last Friday declared force majeure on its LNG shipments loading from its fire-damage export plant until the first week of September.  

Nat-gas prices also fell on the outlook for cooler U.S. temperatures will reduce nat-gas demand to power air-conditioners.  The Commodity Weather Group on Tuesday said that most Central and Southern U.S. states are set to see milder temperatures from June 26-30.

U.S. nat-gas inventories may climb after a fire last week at the Freeport, Texas LNG terminal curtailed U.S. nat-gas exports.  The Freeport terminal said last 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 Tuesday at 95.396 bcf, up +1.2% 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 Tuesday was 67.1 bcf, up +3.1% 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 Tuesday was 11.2 bcf, up +10% y/y.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported last 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.

Last 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 17 rose +3 to a 2-3/4 year high of 154 rigs.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).

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