Natural Gas Prices Rise as Winter Approaches
Colder temperatures forecasted for the U.S. boost demand, while global tensions affect supply.
On Tuesday, December Nymex natural gas (NGZ24) closed higher, gaining +0.062 points or +1.84%. Prices bounced back from earlier losses, driven by expectations of colder weather across the U.S. that is likely to increase heating demand for natural gas. According to Maxar Technologies, the eastern U.S. is anticipated to experience below-normal temperatures from December 1-5.
Last week, natural gas prices surged to a one-year high, influenced by rising European prices due to ongoing geopolitical tensions. The situation escalated following a hypersonic missile launched by Russia into Ukraine, prompting significant spikes in European energy costs. Additionally, U.S. sanctions on Gazprombank, the last major Russian financial institution used by some Central European countries for gas transactions, raised concerns about potential disruptions in the remaining Russian natural gas supplies to Europe.
Data from BNEF indicated that dry gas production in the lower 48 states reached 103.9 billion cubic feet per day (bcf/day), reflecting a year-over-year increase of 0.1%. Conversely, gas demand in the same region fell to 89.4 bcf/day, a decrease of 4.1% year-over-year. Meanwhile, liquefied natural gas (LNG) net flows to U.S. export terminals were recorded at 13.9 bcf/day, up 1.8% week-over-week.
Encouraging trends in U.S. electricity production positively impact natural gas consumption by utility companies. The Edison Electric Institute noted a +2.06% year-over-year rise in total electricity output during the week ending November 16, reaching 7,764 Gigawatt hours (GWh). Total output for the 52-week period ended November 16 also increased by +1.8% year-over-year, totaling 4,165,449 GWh.
Analysts anticipate that Wednesday’s EIA natural gas inventory report, scheduled for release a day early due to Thanksgiving, will reflect a decrease of -1 bcf for the week ending November 22. This figure represents a more modest draw compared to the five-year average, which typically shows a decrease of -30 bcf.
The previous week’s EIA report was seen as supportive for natural gas prices as inventories unexpectedly dropped by -3 bcf for the week ending November 15, despite expectations of a +1 bcf increase. Though this decrease was less than the five-year average draw of -16 bcf for this time of year, current inventories remain +3.7% higher year-over-year and +6.4% above their five-year seasonal average, indicating sufficient supplies. In Europe, gas storage levels were at 90% as of November 19, slightly trailing the five-year average of 91% for this period.
Lastly, Baker Hughes reported a decline in the number of active U.S. natural gas drilling rigs, which decreased by -2 to a total of 99 rigs during the week ending November 22. This figure remains slightly above the 3-and-a-half-year low of 94 rigs recorded on September 6. The count of active rigs has been on a downward trajectory since reaching a 5-and-a-quarter-year high of 166 rigs in September 2022, significantly up from the pandemic-era low of 68 rigs seen in July 2020, based on historical data dating back to 1987.
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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
