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Nat-Gas Prices Recover Early Losses As European Gas Prices Surge

Rich Asplund - Barchart - 21 minutes ago

Nat-gas prices Wednesday initially fell to a 2-1/2 month low on concern that Hurricane Ian will inflict catastrophic damage to Floria and reduce nat-gas demand. Also, the outlook for mild U.S. fall temperatures that curb heating demand for nat-gas weighs on prices. The Commodity Weather Group said it expects above-normal temperatures in the western and central U.S. from October 2-6, with normal temperatures expected in the East.

Lower-48 state total gas production on Wednesday was 100.5 bcf, up +5.7% y/y. Lower-48 state total gas demand on Wednesday was 66.2 bcf/day, up +7.7% y/y. LNG net flow to U.S. LNG export terminals Wednesday was 12.1 bcf/day, up +4.2% w/w.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers. The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended Sep 24 rose +4.7% y/y to 79,329 GWh (gigawatt hours). Also, cumulative U.S. electricity output in the 52-week period ending Sep 24 rose +2.7% y/y to 4,125,781 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 Freeport terminal accounted for about 20% of all U.S. nat-gas exports before the explosion on June 8 knocked it offline. The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower-48 U.S. states. The Freeport terminal said Aug 23 that it won't reopen until early to mid-November, later than a previous announcement of a restart in October.

The consensus is for Thursday's weekly EIA nat-gas inventories to climb +94 bcf.

Last Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +103 bcf to 2,874 bcf in the week ended Sep 16, above expectations of a +95 bcf increase and above the 5-year average of +81 bcf. However, inventories remain tight and are down -6.7% y/y and -10.4% below their 5-year seasonal average.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended Sep 23 fell by -2 rigs to 160, falling back slightly from a 3-year high of 166 rigs 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).

Oct Nymex natural gas (NGV22) on Wednesday closed up by +0.217 (+3.26%).

Oct nat-gas Wednesday recovered from a 2-1/2 month low and closed moderately higher. Nat-gas prices Wednesday shook off early losses on positive carry-over from an +11% surge in European nat-gas prices. European nat-gas prices soared Tuesday and Wednesday after Gazprom PJSC warned there is a risk Russia will sanction Ukraine's Naftogaz and prevent it from being able to pay transit fees, which would put at risk gas flows to Europe via Ukraine.

Also, this week's sabotage of the Nord Stream 1 undersea nat-gas pipeline and the massive leak under the ocean means there will be no near-term chance that Russian might reopen the pipeline to begin delivering gas to Europe again. Prior to the explosions, Russian's state-owned gas company Gazprom had cut off the delivery of gas through that pipeline to Europe under the pretext of technical issues.

Reduced U.S. nat-gas production is supportive for prices after the Bureau of Safety and Environmental Enforcement said U.S. energy companies idled 5.95% or 128 mcf/day of daily gas production in the Gulf of Mexico due to the approach of Hurricane Ian.

Nat-Gas Prices Recover Early Losses As European Gas Prices Surge (barchart.com)