Warm Weather Forecast Douses Nat-Gas Prices
April Nymex natural gas (NGJ24) saw a decline of -0.045 (-2.58%) on Wednesday, marking yet another chapter in the tumultuous story of natural gas prices. US weather forecasts took a warmer turn, signaling reduced heating demand for nat-gas and triggering moderate losses in prices. Maxar Technologies added fuel to the fire by reporting a surge in above-normal temperatures from March 30 to April 3 across the eastern United States.
A Frigid Start: Natural Gas Prices Plummet
Throughout the year, natural gas prices have plummeted to a 3-1/2 year low in late February, as an unseasonably mild winter curbed heating consumption. The resultant surplus in inventories reached unprecedented levels, exacerbated by a strong El Nino weather pattern projected by the US Climate Prediction Center to persist through March. This persistent warmth pushes prices down, forming a stormy cloud over the nat-gas market.
Adding to the woes, the Freeport LNG nat-gas export terminal in Texas suffered damage from extreme cold in March, leading to the shutdown of one production unit. While partially operational now, the full reopening is not expected until May. The restricted capacity at Freeport limits US nat-gas exports, contributing to the surplus in nat-gas inventories.
Supply and Demand Dynamics
Lower-48 state dry gas production on Wednesday hovered at 99.7 bcf/day (+0.3% y/y), according to BNEF. Despite this, lower-48 state gas demand was down at 82.9 bcf/day (-6.5% y/y). In a parallel storyline, LNG net flows to US LNG export terminals sat at 13.5 bcf/day (+3.7% w/w) that day. As electricity output in the US dipped by 5.45% y/y to 70,442 GWh in the week ending March 16, the impact on nat-gas demand from utility providers became apparent.
Tumultuous Inventories and Drilling Activity
In anticipation of Thursday’s weekly EIA nat-gas inventories, experts predict a climb of +6 bcf, a significant deviation from the five-year average draw of -42 bcf for this time of year. The composition of last Thursday’s report, indicating a decline of -9 bcf, sparked a bullish trend in nat-gas prices, despite falling short of the 5-year average of -87 bcf for the season. With European gas storage reaching 60% full as of March 18, well above the 5-year average, the global landscape for natural gas remains turbulent.
Baker Hughes reported a slight uptick in the number of active US nat-gas drilling rigs, rising to 116 rigs in the week ending March 15. This figure surpasses the recent 2-year low of 113 rigs and signals a fluctuating trend in drilling activity since the pandemic-era record low in July 2020.
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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.
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