Nat-Gas Prices Plummet Amid Spring Forecasts
April Nymex natural gas (NGJ24) on Friday saw a sharp decline by -0.086 (-4.94%) closing, as nat-gas prices took a hit due to warm early spring predictions. The forecasts hint at reduced heating demand for nat-gas, resulting in sustained high inventories. A recent report from Maxar Technologies reinforced the warmer weather outlook for the eastern US from March 25-29.
The Fall of Nat-Gas Prices: A Seasonal Shift
This year saw a collapse in nat-gas prices, plummeting to a 3-1/2 year low in late February. The mild winter played a crucial role in this downward trend by decreasing heating consumption for nat-gas, leading to an increase in inventories above the norm. The US Climate Prediction Center indicated a high likelihood of the lingering El Nino weather pattern maintaining its strength in the Northern Hemisphere through March, pushing temperatures above average and weighing on nat-gas prices.
Freeport LNG Terminal Impact on Nat-Gas Exports
Adding to the pressure on nat-gas prices, the Freeport LNG nat-gas export terminal in Texas halted one of its production units on March 1 due to cold weather damage. Although the unit is set for reopening this week, the remaining two units await maintenance, delaying full capacity until May. This limitation on US nat-gas exports elevates nat-gas inventories.
Supply and Demand Dynamics
Lower-48 state dry gas production was reported at 99.8 bcf/day (+0.6% y/y) while gas demand was noted at 72.3 bcf/day (-15.8% y/y). Flows to US LNG export terminals were at 12.9 bcf/day(-3.4% w/w). A decrease in US electricity output negatively affects nat-gas demand from utility providers, as evidenced by a 2.8% y/y decline in total US electricity output in the week ending March 9.
Market Reports and Inventories
Notably, the weekly EIA report on Thursday showed a bullish trend for nat-gas prices, with a greater-than-expected decline of -9 bcf in inventories for the week ended March 8. Despite this, the stockpile was notably higher both year on year and above the 5-year seasonal average, signifying ample supplies. European gas storage also surpassed its 5-year average, sitting at 60% capacity as of March 13.
Drilling Activity and Industry Trends
Baker Hughes reported a slight increase in active US nat-gas drilling rigs to 116, just above a 2-year low. This rise comes after a significant drop from a pandemic-era record low of 68 rigs in July 2020 to a peak of 166 rigs in September 2022.
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Please note that Rich Asplund has no positions in the securities mentioned in this article. The information provided here is for informational purposes only. For further details, refer to the Barchart Disclosure Policy.
The opinions expressed by the author in this piece do not necessarily align with those of Nasdaq, Inc.
