Market Conditions and Weather Impact

The sharp decline in natural gas prices coincided with warmer weather forecasts in the U.S. for mid-March. This increase in temperatures is expected to reduce heating demand for natural gas, as indicated by Maxar Technologies. They project that temperatures across the Midwest and Eastern U.S. will be significantly higher than normal from March 17-21.

Storage and Production Trends

Earlier this week, natural gas prices surged to a two-year high due to expectations that U.S. gas storage levels would remain tight heading into the summer air-conditioning season. BloombergNEF estimates that U.S. gas storage could be 10% below the five-year average for the upcoming summer months. As of February 28, the EIA reported that natural gas inventories were down -11.3% year-on-year and near the lowest levels seen in over two and a half years.

Production figures reflect a robust trend, with the Lower-48 states producing 106.8 billion cubic feet per day (bcf/day), an increase of 4% year-on-year according to BNEF. Additionally, gas demand in these states reached 78.6 bcf/day, reflecting a year-over-year increase of 7.5%.

Electric Demand and Export Potential

The increase in electricity output in the U.S. positively impacts natural gas demand from utility providers. The Edison Electric Institute reported that for the week ending March 8, total electricity output in the Lower-48 states rose by 7.8% year-over-year to 77,360 GWh. Over the past year, electricity output has increased by 3.35% to a total of 4,237,406 GWh.

On a longer-term note, a positive factor for natural gas prices emerged when President Trump lifted the prior administration’s hold on LNG export project approvals in January. This initiative re-activates a backlog of around a dozen LNG export projects, with reports indicating that the administration is nearing approval for a Commonwealth LNG facility in Louisiana. Enhanced U.S. capacity for LNG exports is likely to boost demand for natural gas and help support its prices.

Upcoming Inventory Reports and Drilling Activity

Analysts expect that the weekly EIA report on natural gas inventories, set to be released Thursday, will show a decrease of -50 bcf for the week of March 7, a figure less than the five-year average decrease of -56 bcf for this time of year.

The previous EIA report, released last Thursday, was somewhat bearish for natural gas prices. It revealed a decline of -80 bcf in inventories for the week ending February 28, which fell short of expectations for a decrease of -93 bcf. Compared to last year, inventories were down -24.6% and -11.3% below the five-year seasonal average, highlighting ongoing tight supplies in the natural gas market. Furthermore, natural gas storage in Europe was reported at 37% of capacity as of March 9, compared to a five-year seasonal average of 47% for this period.

Additionally, Baker Hughes reported a weekly decrease in the number of active U.S. natural gas drilling rigs. As of the week ending March 7, there were 101 rigs, down by one compared to the prior week, slightly more than the 3.5-year low of 94 rigs recorded on September 6, 2024. This decline follows a high of 166 rigs in September 2022, marking a significant drop from the pandemic low of 68 rigs observed in July 2020 (data back to 1987).