Natural Gas Prices Drop After Hitting Two-Year High Amid Weather Changes
On Thursday, March Nymex natural gas (NGH25) experienced a significant downturn, closing lower by -0.128 (-2.99%).
Warm Weather Forecasts Drive Price Decline
Despite an initial surge to a two-year high, March nat-gas prices closed lower after forecasts indicated warmer weather for parts of the central United States from February 25 to March 1. This change is expected to lower heating demand. Maxar Technologies reported that the latest forecasts prompted long liquidation in nat-gas futures. Before the decline, cold temperatures and storms across the US had pushed prices up. Additionally, the weekly EIA inventory report revealed a decrease of -196 billion cubic feet (bcf) in nat-gas inventories, exceeding the anticipated draw of -193 bcf.
Supply Tightness Continues to Support Prices
Recent tightness in nat-gas supplies has contributed to price increases. As of February 14, EIA reported that inventories were -5.3% below the five-year average, marking the most constrained supply levels in over two years. This tight supply backdrop has positioned the market for potential price support.
Potential for LNG Export Growth
In a positive development, President Trump recently lifted the Biden administration’s hold on gas export projects, leading to renewed consideration of about a dozen LNG export initiatives. Bloomberg has suggested that the Trump administration is on the verge of approving its first LNG export project at the Commonwealth LNG facility in Louisiana. This expansion in US LNG export capacity could significantly enhance demand for domestic nat-gas and bolster prices further.
Production and Demand Statistics
On February 15, the Lower-48 state dry gas production was reported at 101.1 bcf/day, a 3.9% decline year-over-year, according to BNEF. However, gas demand during the same period surged to 129.8 bcf/day, showing a notable increase of 39.3% year-over-year. Additionally, LNG net flows to US export terminals remained steady at 15.3 bcf/day, up 0.4% week-over-week, according to BNEF.
Increasing Electricity Output Bodes Well for Demand
An uptick in electricity generation offers a favorable outlook for nat-gas demand from utilities. The Edison Electric Institute reported that total electricity output in the Lower-48 states rose by 10.9% year-over-year, reaching 84,714 GWh for the week ending February 15. When evaluated over the past year, electricity output increased by 2.8%, totaling 4,215,106 GWh.
Weekly Inventory Report Encourages Optimism
February 14’s EIA report proved supportive for nat-gas prices, as the inventory draw of -196 bcf was larger than the forecasted -193 bcf and surpassed the five-year average draw of -145 bcf for this season. The current inventories are down -14.9% year-over-year and -5.3% below the five-year seasonal average, further indicating that supplies are tight. In Europe, gas storage levels stood at 43% as of February 18, compared to the five-year average of 53% for this time of year.
Active Drilling Rigs Show Minor Increase
Baker Hughes reported an increase in active US nat-gas drilling rigs, lifting the count to 101 rigs for the week ending February 14. This figure is a slight rebound from the three-and-a-half-year low of 94 rigs observed on September 6, 2024. Drilling activity has seen a downward trend since reaching a five-and-a-quarter-year high of 166 rigs in September 2022, following a pandemic-era low of 68 rigs in July 2020, based on historical data.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information and data herein are for informational purposes only. Please refer to the Barchart Disclosure Policy for more details.
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