Nat-Gas Plunges as Weekly EIA Inventories Climb More Than Expected

July Nymex natural gas (NGN22) on Thursday closed down -0.619 (-9.03%).

Nat-gas prices Thursday tumbled to a 2-1/2 month low and settled sharply lower on a bigger than expected build in weekly EIA nat-gas supplies.  The EIA reported that weekly nat-gas inventories rose +74 bcf last week, above the consensus of +62 bcf.  Also, signs of normal U.S. weather that will curb nat-gas demand from electricity providers to power air-conditioning are bearish for prices after Atmospheric G2 said Thursday that most of the U.S. are expected to face normal temperatures from June 28-July 2.

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.  BNEF data shows LNG net flows to U.S. LNG export terminals Thursday was 10.6 bcf, down -2.8% w/w.

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 94.6 bcf, up +1.4% y/y.

Above-normal temperatures in the U.S. have boosted domestic demand for nat-gas to power air-conditioners.  Lower 48 state total gas demand on Thursday was 66.4 bcf, up +10.7% 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.

Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +74 bcf to 2,169 bcf in the week ended June 17, above expectations of +62 bcf.  However, inventories remain tight and are down -12.6% y/y and -13.2% 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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