Natural Gas Prices Rise Amid Cooler Temperatures and Tariffs
April Nymex natural gas prices (NGJ25) closed on Wednesday at +0.100, up +2.30%.
Market Overview
Despite a recent uptick, natural gas prices remain below the two-year high reached on Tuesday. The outlook for cooler weather in the western United States is supporting demand for natural gas. According to weather forecaster Maxar Technologies, below-normal temperatures are anticipated in the western U.S. during March 15-19.
Impact of Tariffs on Pricing
Starting Tuesday, U.S. tariffs of 10% on Canadian natural gas imports are expected to contribute upward pressure on U.S. prices, as importers will now face additional costs. Furthermore, the Canadian province of Ontario has indicated it may impose a 25% export tariff on electricity sent to 1.5 million homes in Minnesota, Michigan, and New York if U.S. tariffs remain in effect. This situation could further increase domestic electricity demand generated by natural gas.
Supply and Demand Dynamics
Natural gas prices have experienced volatility recently, influenced by weather-related factors. They are currently hovering near the peak reached during February’s rally, which stemmed largely from significant inventory drawdowns associated with colder weather. As reported on February 21 by the Energy Information Administration (EIA), natural gas inventories were down 11.5% compared to the five-year average, reflecting the tightest supply levels seen in over two-and-a-half years.
According to BNEF, dry gas production in the Lower 48 states reached 106.1 billion cubic feet per day (bcf/day) on Wednesday, reflecting a year-over-year increase of 4.4%. Additionally, natural gas demand in these states was recorded at 86.7 bcf/day, a rise of 9.0% from the previous year. Liquefied natural gas (LNG) net flows to U.S. export terminals also increased to 15.2 bcf/day, up 0.9% week-over-week.
Electricity Generation Trends
The rise in U.S. electricity output is a favorable indicator for natural gas demand from utility companies. The Edison Electric Institute reported a year-over-year increase of 2.15% in total electricity output for the week ending March 1, totaling 76,865 GWh (gigawatt hours). For the 52-week period ending March 1, output rose by 3.16% to 4,231,788 GWh.
Long-Term Outlook
In a potentially bullish development for natural gas prices, President Trump lifted the Biden administration’s pause on approving gas export projects in January. This decision has prompted considerations for a backlog of approximately a dozen LNG export projects. According to Bloomberg, the Trump administration is nearing the approval of its first LNG export facility, Commonwealth LNG, in Louisiana. An increase in U.S. LNG export capacity would likely heighten demand for domestic natural gas, supporting prices in the long run.
Inventory Projections
The consensus forecast anticipates a decrease of 93 bcf in Thursday’s weekly EIA natural gas inventory report, which is closely aligned with the five-year average decline of 94 bcf for this time of year.
Last Thursday’s EIA report yielded slightly bearish sentiments for natural gas prices. The week ending February 21 saw inventories decrease by 261 bcf—a softer draw compared to the anticipated 271 bcf but higher than the five-year typical decline of 141 bcf. As of the same date, inventories were down 22.5% year-over-year and 11.5% below the five-year average, indicating a tight supply situation. In Europe, gas storage was recorded at 38% capacity as of March 2, compared to a five-year average of 49%.
Active Drilling Rigs Update
Baker Hughes reported that the number of active natural gas drilling rigs in the U.S. rose by three to 102 rigs as of the week ending February 28. This figure is modestly above the 3.5-year low of 94 rigs reached on September 6, 2024. Overall, the active rig count has declined from a 5.25-year high of 166 rigs recorded in September 2022, and it is down from the pandemic-era low of 68 rigs seen in July 2020, based on data available since 1987.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information and data in this article is intended for informational purposes only. For more information, please refer to the Barchart Disclosure Policy.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
