Nat-Gas Climbs as Hot U.S. Temps Boost Domestic Demand

July Nymex natural gas (NGN22) on Wednesday closed up +0.050 (+0.73%).

Nat-gas prices Wednesday posted moderate gains as hot U.S. temperatures boost domestic nat-gas demand.   BNEF data shows lower 48-state nat-gas demand Wednesday was 67.4 bcf, up +8.2% y/y.

However, gains were limited by forecasts for cooler U.S. weather that will reduce nat-gas demand from energy providers to power air-conditioning.  Maxar Technologies said Wednesday that cooler temperatures are expected in the Midwest, Mid-Atlantic, and Northeast from June 27-July 1.  

Nat-gas prices are being undercut by 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.  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.  Despite the Freeport terminal disruption, BNEF data shows LNG net flows to U.S. LNG export terminals Wednesday was 10.371 bcf, up +6.8% y/y.

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 Wednesday at 95.2 bcf, up +1.9% y/y.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended June 18 rose +6.0% y/y to 91,360 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending June 18 rose +2.4% y/y to 4,096,486 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.

The consensus is for Thursday's weekly EIA nat-gas inventories to climb +62 bcf.

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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