Surging Natural Gas Prices as Cold Snap Looms Over the U.S.
Frigid Weather Expected to Boost Demand
February Nymex natural gas (NGG25) on Friday closed up by +0.288 (+7.78%).
On Friday, February natural gas prices continued their upward trajectory, reaching a 1-1/2 week high. The rise in prices was largely driven by predictions of extremely cold temperatures hitting much of the U.S. within the next two weeks, which is expected to increase heating demand. According to NatGasWeather.com, an arctic blast will sweep across most of the interior U.S. between January 19 and 24.
Production and Demand Figures Reveal Market Trends
Lower-48 state dry gas production on Friday was reported at 101.7 bcf/day, reflecting a -2.7% decrease year-over-year, as per data from BNEF. Meanwhile, demand in the Lower-48 states was 114.2 bcf/day, up +8.4% compared to last year. Additionally, LNG net flows to U.S. LNG export terminals reached 15.1 bcf/day, which marked an increase of +2.7% week-over-week.
Electricity Production Declines, Affecting Natural Gas Demand
A downturn in U.S. electricity output is impacting natural gas demand from utility companies. The Edison Electric Institute indicated that total electricity output for the week ending January 4 fell -2.73% year-over-year, amounting to 77,518 GWh (gigawatt hours). However, output for the 52-week span leading up to January 4 saw a modest +2.37% year-over-year increase, totaling 4,179,498 GWh.
Inventories Show Mixed Signals Amid Fluctuations
The weekly EIA report released on Wednesday presented a slightly bearish outlook for natural gas prices. It showed a decrease in natural gas inventories for the week ending January 3, down -40 bcf. This was less than the expected draw of -42 bcf and significantly lower than the 5-year average draw of -93 bcf for this time of year. As of January 3, natural gas inventories were +1.1% higher year-over-year and +6.5% above the 5-year seasonal average, indicating sufficient supply. In contrast, European gas storage stood at 69% full as of January 7, below the typical 75% for this period.
Drilling Rig Count Declines
Baker Hughes reported a decrease in the number of active U.S. natural gas drilling rigs, which fell by 3 to a total of 100 rigs for the week ending January 10. This figure is slightly above the previous 3-1/2 year low of 94 rigs recorded on September 6. The active rig count has been on the decline from the 5-1/4 year high of 166 rigs reached in September 2022, following a pandemic-era low of 68 rigs in July 2020.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
