Nat-Gas Prices Rally On Weather

Nat-Gas Prices Rally On Weather

Dec Nymex natural gas (NGZ22) on Friday closed up +0.425 (+7.11%).

Dec nat-gas prices Friday rallied sharply on the -1.7% sell-off in the dollar index and on colder weather forecasts.  The Commodity Weather Group said that below-normal temperatures would spill into the Central and Eastern U.S. from November 13-17.  

Lower-48 state dry gas production on Thursday was 99.5 bcf (+4.2% y/y), mildly below the record high of 103.6 bcf posted on Oct 3, according to BNEF.  Lower-48 state total gas demand Thursday was 67.4 bcf/day, down -22% y/y, according to BNEF.  LNG net flow to U.S. LNG export terminals Thursday was 11.2 bcf/day, up +3.1% 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 Oct 29 fell -0.6% y/y to 68,883 GWh (gigawatt hours).  However, cumulative U.S. electricity output in the 52-week period ending Oct 29 rose +2.1% y/y to 4,114,400 GWh.

Nat-gas prices have support as EU countries agreed to cut nat-gas demand from Russia by 15% by early 2023.  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 Freeport terminal accounted for about 20% of all U.S. nat-gas exports before the explosion on Jun 8 knocked it offline.  The Freeport LNG terminal normally receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.  The current projected opening date is Nov 21.

Thursday’s weekly EIA report was bearish for nat-gas prices since it showed U.S. nat gas inventories rose +107 bcf in the week ended Oct 28, above expectations of +102 bcf and well above the 5-year seasonal average gain of +45 bcf.  Inventories remain tight and are -3.7% 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 Nov 4 fell by -1 rig to 155 rigs, which was 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).