Nat-Gas Prices Sink on the Outlook for Milder U.S. Temps

 Fri Mar 17, 2:39PM CDT

Apr nat-gas Friday sold off to a 3-week low and closed sharply lower.  Nat-gas prices fell on a milder U.S. weather outlook that would reduce heating demand for nat-gas.  The Commodity Weather Group said Friday that above-normal temperatures are expected for most of the southern and eastern states from March 22-28.  The warm winter weather has boosted U.S. nat-gas supplies, with EIA nat-gas inventories +23.7% above their 5-year average as of Mar 10, the most in over 6-1/2 years.

Lower-48 state dry gas production on Friday was 99.6 bcf (+6.2% y/y), moderately below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state gas demand Friday was 82.4 bcf/day, up +27% y/y, according to BNEF.  On Friday, LNG net flows to U.S. LNG export terminals were 13.7 bcf, up +3.1% w/w.  On Mar 3, LNG net flows to U.S. LNG export terminals rose to a record 14.1 bcf/day as nat-gas exports restarted from the Freeport LNG terminal as the terminal was reopened after being closed since last June because of an explosion.

Nat-gas prices have fallen sharply over the past three months and posted a 2-1/4 year nearest-futures low on Feb 22 as normally mild weather across the northern hemisphere erodes heating demand for nat-gas.  January was the sixth-warmest across the contiguous 48 U.S. states in data from 1895.  This winter’s warm temperatures have caused rising nat-gas inventories in Europe and the U.S.  Gas storage across Europe was 56% full as of Mar 13, far above the 5-year seasonal average of 36% for this time of year.  Also, U.S. nat-gas inventories were +23.7% above their 5-year average as of Mar 10, the most in more than 6-1/2 years.

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 Mar 11 fell -1.7% y/y to 73,813 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Mar 11 rose +1.1% y/y to 4,102,283 GWh.

Thursday’s weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories fell -58 bcf, less than expectations of -61, and a much smaller draw than the 5-year average draw of -77 bcf for this time of year.  Nat-gas inventories are now +23.7% above their 5-year seasonal average, the most in over 6-1/2  years.

Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ended Mar 17 rose +9 rigs to a 6-month high of 162 rigs, just below the 3-1/4 year high of 166 rigs posted in the week ended Sep 9.  Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).