April Natural Gas Prices Rise Slightly Amid Warm Weather Outlook
On Wednesday, April Nymex natural gas (NGJ25) closed up +0.021 (+0.55%). Prices for April natural gas saw modest gains, consolidating above Tuesday’s three-week low. However, expectations for unseasonably warm temperatures in early spring threaten to reduce heating demand for natural gas. Atmospheric G2 indicated that forecasts for March 31 to April 4 shifted towards much warmer conditions in the eastern United States, while the western and central regions are expected to be cooler.
Market Anticipations and Inventory Projections
The consensus is that Thursday’s weekly EIA natural gas inventory report will show an increase of +33 Bcf for the week ending March 21. This contrasts sharply with the five-year average of a -31 Bcf draw from inventories.
Earlier this month, natural gas prices surged to a two-year high due to concerns that U.S. natural gas storage levels could remain constrained ahead of the upcoming summer air conditioning season. BloombergNEF forecasts indicate that U.S. gas storage levels will be approximately 10% below the five-year average this summer.
Production and Demand Data
According to BloombergNEF, dry gas production in the Lower-48 states reached 106.6 Bcf/day, reflecting an increase of +4.1% year-on-year. In contrast, gas demand in these states declined to 81.1 Bcf/day, a drop of -5.4% compared to the previous year. Meanwhile, LNG net flows to U.S. export terminals increased to 15.8 Bcf/day, up +3.5% week-over-week.
Positive Trends in Electricity Generation
A rise in U.S. electricity output should benefit natural gas demand from utility providers. The Edison Electric Institute reported that total electricity output in the Lower-48 states saw a year-on-year increase of +0.9% to reach 72,289 GWh for the week ending March 22. Over the past 52 weeks, electricity generation has risen +3.55% to 4,239,323 GWh.
Long-Term Outlook for Natural Gas Prices
A recent policy change by President Trump, lifting the Biden administration’s pause on gas export projects, could serve as a bullish factor for natural gas prices in the long term. This decision has allowed for the consideration of a backlog of roughly a dozen LNG export projects. Reports suggest that the Trump administration is nearing approval for its first LNG export facility, the Commonwealth LNG project in Louisiana. Increased capacity for U.S. LNG exports may enhance demand for domestic natural gas and provide support for prices.
Current Inventory Levels and Drilling Activity
Last Thursday’s EIA report was bearish for natural gas prices, indicating a build of +9 Bcf in inventories for the week ending March 14, surpassing expectations of a +4 Bcf increase and well above the typical -31 Bcf draw for this time of year. As of March 14, natural gas inventories were down -26.8% year-on-year and -10.0% below the five-year seasonal average, pointing to tight supply conditions. Conversely, European gas storage was 34% full as of March 23, falling short of the five-year seasonal average of 45%.
Baker Hughes reported a slight increase in the number of active U.S. natural gas drilling rigs, which rose by +2 to reach 102 rigs for the week ending March 21. This figure remains modestly above the 3-1/2 year low of 94 rigs recorded on September 6, 2024. Active rigs have decreased from a 5-1/4 year high of 166 rigs in September 2022, down from a pandemic-era low of 68 rigs in July 2020, according to historical data.
On the date of publication, Rich Asplund did not hold (either directly or indirectly) any positions in the securities mentioned in this article. All information and data in this article are intended for informational purposes only. For additional details, please view the Barchart Disclosure Policy here.
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