Natural Gas Prices Surge Following Supply Draw and Colder Weather Forecasts

Market Snapshot: February Natural Gas Sees Strong Gains

February Nymex natural gas (NGG25) closed on Thursday at +0.175, marking an increase of +4.29%.

On Thursday, February natural gas prices rose significantly, nearing Monday’s one-year high for near-futures trading. The expected decrease in temperatures across the U.S. has increased heating demand for natural gas, contributing to the uptick in prices. Maxar Technologies reported a change in weather forecasts, indicating a colder pattern for northern and western states from January 21-25, with potential record-low temperatures anticipated for the eastern U.S.

Support for natural gas prices also stemmed from a significant reduction in inventories. The Energy Information Administration (EIA) noted a draw of -258 billion cubic feet (bcf) for the week ending January 10, which closely aligned with projections of -260 bcf and substantially exceeded the five-year average draw of -128 bcf for this time of year.

According to BNEF, dry gas production in the lower 48 states hit 103.7 bcf/day, reflecting an annual increase of +14.6%. In contrast, gas demand in these states was reported at 109.7 bcf/day, a decline of -19.2% compared to the previous year. Despite the drop in demand, liquefied natural gas (LNG) net flows to U.S. export terminals reached 15.5 bcf/day, up +6.2% week-over-week.

The electricity output in the U.S. has also seen an uptick, which positively impacts natural gas demand from utilities. The Edison Electric Institute revealed that total electricity output for the lower 48 states increased by +10.61% year-over-year to 91,182 GWh for the week ending January 11. Over the past 52 weeks, electricity output rose +2.46% year-over-year, totaling 4,188,244 GWh.

The latest EIA report was encouraging for natural gas prices, highlighting the significant inventory draw of -258 bcf, which is considerably more than the five-year average. As of January 10, natural gas inventories have risen +2.1% year-over-year and remain +2.5% above the five-year seasonal average, indicating sufficient supply in the market. Conversely, Europe’s gas storage levels are at 65% as of January 13, below the five-year average of 71% for this period.

Baker Hughes indicated a reduction in active natural gas drilling rigs, which decreased by 3 to reach 100 rigs by the week ending January 10. This figure is slightly above the 3.5-year low of 94 rigs recorded on September 6. Active rigs have declined since reaching a 5.25-year high of 166 in September 2022, a recovery from the pandemic low of 68 in July 2020.

On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. The information provided is purely for informational purposes. To view our full disclosure policy, please click here.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.