Nat-Gas Prices Sink as Warm Winter Temps Engulf the U.S.

Rich Asplund Barchart Fri Feb 23, 2:18PM CST
Natural Gas - Natural Gas Burnoff Waste Excess

March Nymex natural gas (NGH24) on Friday closed -0.129 (-7.45%).

Nat-gas prices on Friday closed sharply lower as a shift in U.S. weather forecasts to warmer sent nat-gas prices tumbling.  The Commodity Weather Group said "strong warmth" is expected for the mid-western to the eastern parts of the U.S. from March 4-8, reducing heating demand for nat-gas and keeping supplies elevated.   U.S. nat-gas prices also had some negative carryover from a fall in European nat-gas prices Friday to a 2-3/4 year low.

Nat-gas prices have collapsed this year and posted a 3-1/2 year nearest-futures low on Tuesday as an unusually mild winter curbed heating consumption for nat-gas and pushed inventories well above average.

Nat-gas prices are also under pressure from the announcement by the Freeport LNG nat-gas export terminal in Texas on January 26 that it was forced to shut down one of its three production units for a month for repairs after extreme cold in Texas damaged equipment.  The closure of the unit will limit U.S. nat-gas exports and increase U.S. nat-gas inventories.

On Wednesday, nat-gas prices surged to a 1-week high after Chesapeake Energy Corp said it would cut its nat-gas production by about 20% this year due to market conditions.  Last month, Chesapeake Energy merged with Southwestern Energy to become the top U.S. nat-gas producer.

Lower-48 state dry gas production Friday was 102.4 bcf/day (+2.5% y/y), according to BNEF.  Lower-48 state gas demand Friday was 81.9 bcf/day (-11.9% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Friday were 13.5 bcf/day (-3.6% w/w), according to BNEF.

The U.S. Climate Prediction Center said there is a greater than 55% chance the current El Nino weather pattern will remain strong in the Northern Hemisphere through March, keeping temperatures above average and weighing on nat-gas prices.  AccuWeather said El Nino will limit snowfall across Canada this season in addition to causing above-normal temperatures across North America.

An increase in U.S. electricity output is positive for nat-gas demand from utility providers.  The Edison Electric Institute reported Thursday that total U.S. electricity output in the week ended February 17 rose +1.8% y/y to 76,416 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending February 17 fell -0.2% y/y to 4,100,727 GWh.

Thursday's weekly EIA report was bearish for nat-gas prices as nat-gas inventories for the week ended February 16 fell -60 bcf, close to expectations of -59 bcf but a much smaller draw than the five-year average for this time of year at -168 bcf.  As of February 16, nat-gas inventories were up +12.5% y/y and were +22.3% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 65% full as of February 19, above the 5-year seasonal average of 49% full for this time of year.

Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ending February 23 fell by -1 rig to 120 rigs, moderately above the 2-year low of 113 rigs posted September 8.  Active rigs have fallen back 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.