April Natural Gas Prices Surge to Two-Year High Amid Supply Concerns
On Monday, April Nymex natural gas (NGJ25) closed higher, gaining +0.092 (+2.09%). The price rally pushed April nat-gas prices to a two-year high, driven by indications that U.S. nat-gas storage levels might tighten as the summer air-conditioning season approaches. According to BloombergNEF, U.S. gas storage is projected to be 10% below the five-year average this summer. As of February 28, EIA reports indicated that nat-gas inventories were -11.3% below their five-year average, marking some of the tightest supplies seen in over two and a half years.
Despite the recent highs, nat gas prices moderated from their peaks on Monday due to forecasts predicting warmer weather in the U.S., which is likely to decrease heating demand for nat-gas. Forecaster Maxar Technologies noted that the eastern U.S. is expected to experience warmer, above-average temperatures from March 15-19.
Production and Demand Trends
On the production side, Lower-48 state dry gas output averaged 107.3 billion cubic feet per day (bcf/day), reflecting a year-over-year increase of +4.9%, as reported by BNEF. However, natural gas demand in Lower-48 states reached 81.7 bcf/day, a decrease of -3.8% from the previous year. Notably, LNG net flows to U.S. LNG export terminals rose to 15.7 bcf/day, indicating a +4.8% week-on-week increase.
In a positive development for natural gas demand, U.S. electricity generation has seen a boost. The Edison Electric Institute reported that total U.S. electricity output for the week ending March 1 increased by +2.15% year-over-year to 76,865 gigawatt hours (GWh). For the 52-week period ending March 1, U.S. electricity output also rose by +3.16% year-over-year, totaling 4,231,788 GWh.
Long-term Prospects for Natural Gas
A potential bullish factor for nat-gas prices is the recent decision by President Trump to lift the Biden administration’s moratorium on approving gas export projects. This move is expected to expedite the consideration of a backlog of approximately a dozen LNG export projects. Reports from Bloomberg indicate that the Trump administration is nearing approval for its first LNG export project, a facility located in Louisiana. An increase in U.S. LNG export capacity would likely elevate demand for domestic natural gas, thus supporting nat-gas prices.
Market Inventory Insights
The weekly EIA report released last Thursday provided bearish signals for nat-gas prices, as inventories decreased by -80 bcf for the week ending February 28. This draw fell short of the expectations for -93 bcf and was also less than the five-year average draw of -94 bcf for that period. As of February 28, nat-gas inventories were down -24.6% year-over-year and -11.3% below their five-year seasonal average, indicating tight supplies. Meanwhile, European gas storage levels were reported at 37% full as of March 4, compared to a five-year average of 49% for this time of year.
In the rig count, Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs fell by one to a total of 101 rigs for the week ending March 7. This figure remains modestly above a three-and-a-half-year low of 94 rigs recorded on September 6, 2024. Active rig counts have declined from a five-and-a-quarter-year high of 166 rigs in September 2022, recovering from the pandemic-era low of 68 rigs recorded in July 2020, according to historical data.
On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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