Nat-Gas Prices Recover on Concern Over Tighter Global Supplies

April Nymex natural gas (NGJ26) on Wednesday closed up +0.009 (+0.31%).

Nat-gas prices recovered from a 3.5-week low on Wednesday and settled slightly higher after Iran rejected a peace plan from the US, which could keep the Strait of Hormuz closed and curtail nat-gas supplies from the Middle East.  Nat-gas prices initially moved lower on Wednesday amid forecasts for above-normal US weather, which could reduce nat-gas heating demand.  On Wednesday, the Commodity Weather Group said forecasts shifted warmer, with above-average temperatures expected across the US through April 3.  

The downside in nat-gas prices may be limited in the near term after Qatar last Thursday reported "extensive damage" at the world's largest natural gas export plant at Ras Laffan Industrial City.   Qatar said the attacks by Iran damaged 17% of Ras Laffan's LNG export capacity,  a damage that will take three to five years to repair.   The Ras Laffan plant accounts for about 20% of global liquefied natural gas supply, and a reduction in its capacity could boost US nat-gas exports.  Also, the closure of the Strait of Hormuz due to the war in Iran has sharply curtailed nat-gas supplies to Europe and Asia.

US (lower-48) dry gas production on Wednesday was 112.1 bcf/day (+4.3% y/y), according to BNEF.  Lower-48 state gas demand on Wednesday was 76.8 bcf/day (-4.2% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Wednesday were 20.1 bcf/day (+5.7% w/w), according to BNEF.

Projections for higher US nat-gas production are bearish for prices.  On February 17, the EIA raised its forecast for 2026 US dry nat-gas production to 109.97 bcf/day from last month's estimate of 108.82 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs posting a 2.5-year high in late February.

As a positive factor for gas prices, the Edison Electric Institute reported Wednesday that US (lower-48) electricity output in the week ended March 21 rose +7.5% y/y to 77,717 GWh (gigawatt hours).  Also, US electricity output in the 52 weeks ending March 21 rose +1.8% y/y to 4,317,398 GWh.

The consensus is that Thursday's weekly EIA nat-gas inventories will decline by -49 bcf in the week ended March 20, a larger draw than the five-year average for the week of -21 bcf.

Last Thursday's weekly EIA report was bearish for nat-gas prices, as nat-gas inventories for the week ended March 13 rose by +35 bcf, well above the 5-year weekly average draw of -29 bcf.  As of March 13, nat-gas inventories were up +10.3% y/y, the most in 1.75 years, and +2.6% below their 5-year seasonal average, signaling ample nat-gas supplies.  As of March 23, gas storage in Europe was 28% full, compared to the 5-year seasonal average of 41% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending March 20 fell by 2 to 131, just below the 2.5-year high of 134 rigs from February 27.  In the past 17 months, the number of gas rigs has risen from the 4.75-year low of 94 rigs reported in September 2024.