Nat-Gas Prices Climb on Forecasts for Hot U.S. Temps to Return

Sep Nymex natural gas (NGU22) on Friday closed up +0.148 (+1.61%).  Sep nat-gas Friday shook off early losses and posted moderate gains.  Forecasts for above-normal U.S. temperatures that will boost nat-gas demand from energy providers to power increased air-conditioning usage are supportive of prices.   Atmospheric G2 said Friday that above-normal temperatures are expected in the Northeast and West from Aug 24-28.

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 Friday was 98.2 bcf/day, +3.4% y/y, according to Bloomberg.  Lower-48 state total gas demand on Friday was 70.9 bcf/day, -3.3% y/y, according to Bloomberg NEF data.  LNG net flow to U.S. LNG export terminals Friday was 11.2 bcf/day, down +0.2% 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 -12.7% below their 5-year seasonal average.

Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ended Aug 19 fell by -1 to 159 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 Moderately Higher on U.S. Energy Demand Optimism
• Nat-Gas Prices Fall on Expectations of Cooler U.S. Temps
• Crude Rallies as U.S. Energy Demand Concerns Recede
• Nat-Gas Prices Ease on Forecasts for Normal U.S. Temps