Aug Nymex natural gas (NGQ22) on Tuesday closed down -0.207 (-3.61%).
Nat-gas prices Tuesday tumbled to a 3-month nearest-futures low and closed sharply lower. A milder U.S. weather outlook that will curb air-conditioning usage weighed on nat-gas prices Tuesday. Maxar Technologies said Tuesday that below-normal temperatures are expected on the East Coast from July 10-14. Also, nat-gas prices are falling due to the prolonged outage at the Freeport LNG export terminal, which threatens to curb U.S nat-gas exports and boost domestic supplies. Finally, a rally in the dollar index (DXY00) Tuesday to a 20-year high is bearish for nat-gas prices.
Last Thursday, a federal regulator said the Freeport LNG terminal, which has been shut since a June 8 explosion, can't restart without written permission from the Biden administration. That raises concern that the terminal may be closed even longer than the 90 days first projected.
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 Tuesday was 11.2 bcf, up +2% 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 Tuesday at 96.4 bcf, up +2.9% y/y.
Above-average U.S. temperatures have boosted domestic demand for nat-gas to power air-conditioners. Lower 48 state total gas demand on Tuesday was 68.3 bcf, up +4.7% y/y.
An increase in U.S. electricity output is bullish 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 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.
Last Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +82 bcf to 2,251 bcf in the week ended June 24, above expectations of +74 bcf. However, inventories remain tight and are down -12.0% y/y and -12.5% 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 July 1 fell -4 to 153 rigs, falling back from the prior week's 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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