Natural Gas Prices Rise on Cold Weather and Supply Concerns
March Nymex natural gas (NGH25) on Friday closed up by +0.082 (+1.97%).
Weather Changes Boost Heating Demand
In Friday’s trading, March natural gas prices saw moderate gains but stayed below Thursday’s two-year high. The forecast of colder weather across the eastern U.S. is expected to increase demand for heating, supporting prices. NOAA reported that the outlook has shifted colder for the period from February 26 to March 2. The recent cold snap has led to a significant rise in heating demand, resulting in the surge in prices to their two-year peak on Thursday.
Supply Tightness Drives Prices Higher
The current tightness in natural gas supplies continues to support the upward trend in prices. According to EIA data as of February 14, natural gas inventories are down by 5.3% compared to the five-year average, marking the most restricted supplies seen in over two years.
Political Changes Pave the Way for LNG Exports
A key longer-term factor influencing natural gas prices is the approval of gas export projects, which was resumed under President Trump in January. This shift has allowed about a dozen LNG export projects to be actively considered. Bloomberg indicates that the administration is nearing approval of its first LNG export project, the Commonwealth LNG facility in Louisiana. This increase in U.S. LNG export capacity is expected to boost demand for U.S. natural gas, thereby supporting prices.
Production and Demand Statistics
Recent data from BNEF shows that dry natural gas production in the lower-48 states was at 102 bcf/day, reflecting a 3.4% decline year-over-year. Meanwhile, gas demand rose dramatically to 122.8 bcf/day, a significant increase of 43.3% year-over-year. Additionally, LNG net flows to U.S. export terminals increased to 16 bcf/day, a rise of 5.5% week-on-week.
Electricity Generation Boosts Natural Gas Usage
Increased electricity output is contributing positively to natural gas demand from utility companies. The Edison Electric Institute reported a 10.9% year-over-year rise in U.S. electricity output for the week ending February 15, totaling 84,714 GWh. For the full 52-week period concluding on February 15, electricity output increased by 2.8% year-over-year, reaching 4,215,106 GWh.
Challenging Inventory Levels
The latest EIA report also presented a bullish outlook for natural gas prices, with inventories for the week ending February 14 showing a drop of 196 bcf. This was larger than both the expected draw of 193 bcf and the five-year average draw for this time of year, which is 145 bcf. As of February 14, inventories were down 14.9% year-over-year and 5.3% below the seasonal average, suggesting tight supplies persist. In Europe, gas storage levels were at 43% capacity as of February 18, compared to the five-year average of 53%.
Drilling Activity Trends
Baker Hughes reported that the number of active U.S. natural gas drilling rigs fell by two to 99 for the week ending February 21. This number is modestly above the three-and-a-half-year low of 94 rigs recorded on September 6, 2024. The total active rigs have dropped significantly since peaking at 166 in September 2022, following a record low of 68 in July 2020.
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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