Natural Gas Prices Rise Amid Cold Weather Forecast and Inventory Report
On Thursday, May Nymex natural gas (NGK25) closed up +0.083, representing a 2.05% increase.
Weather Forecast Spurs Demand for Natural Gas
Prices for natural gas settled higher due to colder weather forecasts for the northern United States, which could enhance heating demand. Forecaster Atmospheric G2 indicated that temperatures are expected to drop for the northern US and West Coast from April 8 to April 12. However, gains in natural gas prices were tempered after the weekly EIA report showed inventories rising by +29 billion cubic feet (bcf), slightly exceeding expectations of +28 bcf. This increase is notable when compared to the five-year average for this time of year, which typically reflects a draw of -13 bcf.
Recent Market Dynamics and Production Levels
Last month, natural gas prices surged to a two-year high as signs indicated that US storage levels could remain tight ahead of the summer air-conditioning season. BloombergNEF projected that US gas storage would be 10% below the five-year average for the upcoming summer months.
On Thursday, dry gas production from the Lower 48 states reached 105.4 bcf/day, a year-over-year increase of 3.1%. In contrast, gas demand for the same region declined to 73.3 bcf/day, reflecting a 10.5% decrease compared to the previous year. Additionally, net flows of liquefied natural gas (LNG) to US export terminals were recorded at 15.5 bcf/day, down 2.1% week-over-week.
Electricity Output and Demand Outlook
Increased electricity generation in the US is expected to positively impact demand for natural gas among utility companies. The Edison Electric Institute reported that total electricity output in the Lower 48 states for the week ending March 22 rose by 0.9% year-over-year, reaching 72,289 gigawatt hours (GWh). Over the past 52 weeks, output increased by 3.55% year-over-year to a total of 4,239,323 GWh.
Government Policy Shift and Future Prospects
In a potentially bullish development for natural gas prices, President Trump lifted the Biden administration’s temporary halt on approving gas export projects in January. This change could expedite the consideration of around a dozen LNG export projects, thereby increasing US LNG export capacity and supporting future demand for natural gas.
EIA Report Highlights Supply Concerns
The consensus from Thursday’s EIA report indicated that natural gas inventories rose by +28 bcf, above the five-year average draw of -13 bcf for the week ending March 28. However, the actual inventory increase was +29 bcf, larger than anticipated and well above the average deviation for this time of year. As of March 28, natural gas inventories were down 21.5% year-over-year and 4.3% below their five-year historical average, which signals tighter supply conditions. In Europe, gas storage was reported at 34% full as of April 1, compared to a five-year average of 45% full for this season.
Drilling Activity Trends
Baker Hughes reported that the number of active nat-gas drilling rigs in the US increased by one to reach 103 rigs in the week ending March 28. This figure is modestly above the 94 rig count, the lowest recorded in three-and-a-half years on September 6, 2024. Notably, rig counts have declined significantly since peaking at 166 rigs in September 2022, following a pandemic-era low of 68 rigs in July 2020, based on data collected since 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 are 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.
