Nat-Gas Prices Supported by Reduced US Nat-Gas Output

Rich Asplund - Barchart - Tue May 7, 2:20PM CDT

June Nymex natural gas (NGM24) on Tuesday closed up by +0.012 (+0.55%).

June nat-gas prices on Tuesday posted modest gains as they consolidated below Monday's 3-1/2 month nearest-futures high. Gas prices have carryover support from last Friday when Baker Hughes reported that the number of active US nat-gas drilling rigs in the week ending May 3 fell by -3 rigs to a 2-1/2 year low, which signals a reduction in US nat-gas production in the near term.

Nat-gas prices fell back from their best levels Tuesday as temperature forecasts for the US moderated, which may curb nat-gas demand from electricity providers to power air-conditioning usage. On Tuesday, forecaster Maxar Technologies said forecasts trended warmer in the mid-south but were close to normal elsewhere in the US from May 12-16.

Nat gas prices on April 26 tumbled to a 3-3/4 year nearest-futures low (NGK24) due to ample US nat-gas supplies and mild spring temperatures. Nat-gas prices collapsed after an unusually mild winter curbed heating consumption for nat-gas and pushed inventories well above average.

Nat-gas prices were under pressure after the Freeport LNG nat-gas export terminal in Texas on March 1 shut down one of its three production units due to damage from extreme cold in Texas. The unit recently reopened on a partial basis. However, Freeport said that once the production unit is fully reopened, the other two units will be taken down for maintenance, and all three units will not return online until late May. The lack of full capacity of the Freeport export terminal limits US nat-gas exports and boosts US nat-gas inventories.

Lower-48 state dry gas production Tuesday was 97 bcf/day (-4.2% y/y), according to BNEF. Lower-48 state gas demand Tuesday was 66.5 bcf/day (+9.6% y/y), according to BNEF. LNG net flows to US LNG export terminals Tuesday were 12.2 bcf/day (-4.7% w/w), according to BNEF.

An increase in US electricity output is positive for nat-gas demand from utility providers. The Edison Electric Institute reported last Wednesday that total US electricity output in the week ended April 27 rose +1.81% y/y to 69,594 GWh (gigawatt hours), although cumulative US electricity output in the 52-week period ending April 27 fell -0.2% y/y to 4,097,611 GWh.

Last Thursday's weekly EIA report was neutral for nat-gas prices since nat-gas inventories for the week ended April 26 rose by +59 bcf, close to expectations of +58 bcf but below the 5-year average build for this time of year of +72 bcf. As of April 26, nat-gas inventories were up +20.4% y/y and were +34.9% above their 5-year seasonal average, signaling ample nat-gas supplies. In Europe, gas storage was 64% full as of May 5, above the 5-year seasonal average of 49% 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 May 3 fell by -3 rigs to a 2-1/2 year low of 102 rigs. Active rigs have fallen since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.