Nat-Gas Prices Slip on a Mixed U.S. Weather Outlook

Aug Nymex natural gas (NGQ22) on Wednesday closed down -0.072 (-1.10%).

Nat-gas prices Wednesday gave up an early advance and closed moderately lower on a mixed U.S. weather forecast, which should reduce nat-gas demand from electricity providers to power air-conditioning.  The National Oceanic and Atmospheric Administration (NOAA) said Wednesday that below-normal temperatures are expected for the U.S. West Coast and Northeast, and above-normal temperatures are expected in the U.S. South and Midwest from July 6-12.

Nat-gas prices on Monday posted a 2-1/2 month low on the outlook for rising U.S. nat-gas inventories due to reduced exports.  Freeport LNG, on June 17, declared force majeure on its LNG shipments loading from its fire-damage export plant until the first week of September.  The Freeport terminal on June 14 said 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 Wednesday was 10.7 bcf, up +2.1% 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 Wednesday at 94.9 bcf, up +1.6% y/y.

Near-normal temperatures in the U.S. have cut domestic demand for nat-gas to power air-conditioners.  Lower 48 state total gas demand on Wednesday was 66.8 bcf, up -12.4% 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 25 rose +4.8% y/y to 89,484 GWh (gigawatt hours).  Also, cumulative U.S. electricity output in the 52-week period ending June 18 rose +2.5% y/y to 4,100,606 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 increase by +74 bcf.

Last 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 24 rose +3 to a 2-3/4 year high of 157 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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