March Natural Gas Prices Slip Amid Warmer Weather Forecasts

March Nymex natural gas (NGH25) closed down -0.268 (-6.42%) on Wednesday, reaching a one-week low. The decline was mainly driven by expectations of warmer temperatures across the U.S., which are likely to lower heating demand for natural gas. Weather forecaster Maxar Technologies indicated that the outlook for March 8-12 has turned warmer for the East Coast and parts of the central U.S.

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In recent trading sessions, natural gas prices have been highly volatile due to shifting weather patterns. Prices have stabilized below last Thursday’s two-year high, yet they remain elevated compared to the start of February, primarily due to a significant drawdown in inventories linked to the recent cold weather. As of February 14, EIA natural gas inventories were reported to be -5.3% below their five-year average, reflecting the tightest supplies seen in over two years.

According to BNEF, Lower-48 state dry gas production on Wednesday was 106.6 Bcf/day, marking a 2.2% increase year-over-year (y/y). Additionally, Lower-48 state gas demand registered at 83.1 Bcf/day, which is up 5.8% y/y. On the export front, LNG net flows to U.S. LNG export terminals were recorded at 15.6 Bcf/day, a modest increase of 0.8% week-over-week.

The recent uptick in U.S. electricity output bodes well for natural gas demand from utilities. The Edison Electric Institute announced that total U.S. electricity output for the week ending February 22 increased by 19.9% y/y to 90,673 GWh (gigawatt-hours) and that electricity output over the past 52 weeks grew by 3.1% y/y to 4,230,167 GWh.

In a long-term bullish signal for natural gas prices, the Trump administration lifted the Biden administration’s freeze on approving LNG export projects in January. This decision has expedited the consideration of a backlog of roughly a dozen projects, including the impending approval of the Commonwealth LNG export facility in Louisiana. Increased U.S. capacity for LNG exports is expected to elevate demand for domestic natural gas and consequently support prices.

Analysts project a significant draw of -277 Bcf in the upcoming Thursday’s weekly EIA report, surpassing the five-year average draw of -141 Bcf for this time of year. Last week’s EIA report revealed a bullish trend, as natural gas inventories for the week ending February 14 decreased by -196 Bcf, exceeding both expectations of -193 Bcf and the five-year average draw of -145 Bcf. Year-over-year, inventories are down -14.9% and -5.3% below the five-year seasonal average, indicating a supply shortage in natural gas. Furthermore, European gas storage levels were registered at 40% as of February 24, compared to the five-year average of 51% for this timeframe.

Baker Hughes provided data indicating that the number of active U.S. natural gas drilling rigs fell by -2 to 99 rigs in the week ending February 21. This figure remains slightly above the 3-1/2 year low of 94 rigs recorded on September 6, 2024. Active drilling rigs have declined since peaking at 166 rigs in September 2022, a notable recovery from the pandemic low of 68 rigs in July 2020 (data dating back to 1987).

On the date of publication, Rich Asplund did not hold any positions in the securities mentioned. All data in this article is for informational purposes only. For full disclosure, please visit the Barchart Disclosure Policy here.

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