Nat-Gas Prices Fall on Expectations of Cooler U.S. Temps

Sep Nymex natural gas (NGU22) on Thursday closed down -0.056 (-0.61%).  Nat-gas prices Thursday posted moderate losses.  Expectations for normal U.S. temperatures that will reduce nat-gas demand from energy providers to power air conditioning are bearish for prices.  The Commodity Weather Group said Thursday that normal temperatures are expected across most of the U.S. from Aug 23-27.  Losses in nat-gas prices were limited after Thursday's weekly EIA report showed nat-gas inventories rose only +18 bcf last week, below expectations of a +32 bcf increase.

Nat-gas prices have rallied this week up to a 3-week high Wednesday on carry-over from a surge in European gas prices to a 5-1/4 month high.  The surge in European gas prices will keep foreign demand for U.S. gas supplies firm and keep U.S. nat-gas exports running at full tilt, limiting a build of nat-gas storage ahead of the winter season.

Lower-48 dry gas production on Thursday was 97.7 bcf/day, +3.6% y/y, according to Bloomberg.  Lower-48 state total gas demand on Thursday was 69.8 bcf/day, -2.8% y/y, according to Bloomberg NEF data.  LNG net flow to U.S. LNG export terminals Thursday was 11.3 bcf/day, down -0.9% w/w, according to BNEF.

A decline in U.S. electricity output is bearish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Aug 13 fell -1.7% y/y to 91,862 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Aug 13 rose +3.3% y/y to 4,127,606 GWh.

Nat-gas prices have support as EU countries agreed to cut nat-gas demand from Russia by 15% over the next eight months.  Also, Russia recently slashed nat-gas exports to Europe to 20% of capacity, putting upward pressure on European nat-gas prices.  Russia has already halted nat-gas shipments to Demark, Finland, Bulgaria, Netherlands, Poland, and Latvia and reduced supplies to Germany for not acceding to its demand for gas payments in Russian rubles.

Nat-gas prices have seen downward pressure from the prolonged outage at the Freeport LNG export terminal, which curbed U.S nat-gas exports and put upward pressure on domestic supplies.  The LNG terminal has been closed since a June 8 explosion.  Freeport recently reached a deal with regulators to restart operations in October, which was sooner than earlier expected.  The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower-48 U.S. states.

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 bullish for nat-gas prices as it showed U.S. nat gas inventories rose +18 bcf to 2,519 bcf in the week ended Aug 12, below expectations of a +32 bcf increase.  Inventories remain tight and are down -10.7% y/y and are -12.7% below their 5-year seasonal average.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended Aug 12 fell by -1 to 160 rigs, which was slightly below the 3-year high of 161 rigs posted in the week ended Aug 5.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).

• Crude Rallies as U.S. Energy Demand Concerns Recede
• Crude Posts Moderate Gains as EIA Crude Inventories Plunge
• Nat-Gas Prices Ease on Forecasts for Normal U.S. Temps
• Crude Pushes Higher as Weekly EIA Crude Inventories Plunge