Natural Gas Prices Plummet Amid Warmer Weather Predictions
Shift in Weather Forecasts Leads to Heating Demand Decline
February Nymex natural gas (NGG25) closed sharply lower on Tuesday, dropping by -0.192 (-4.86%). Prices fell to a one-week low as warmer weather forecasts for late January and early February across the eastern and central United States suggested a decrease in heating demand for natural gas. Maxar Technologies reported that projections moved towards milder conditions for most regions in the central and eastern US from January 31 through February 4.
Just last Monday, natural gas prices surged to a year-high for nearest-futures due to a brutal arctic blast that drove temperatures down nationwide, spiking heating demand and lowering inventories. The EIA’s recent report showed that natural gas inventories fell by -258 bcf for the week ending January 10, significantly higher than the five-year average draw of -128 bcf during this period.
On Tuesday, natural gas production in the lower 48 states was 99.4 bcf/day, experiencing a 2.0% decline year-over-year, as per BNEF. Meanwhile, the demand for natural gas was reported at 136.8 bcf/day, which marked a 13.3% increase year-over-year. Additionally, net flows of LNG to US export terminals decreased to 13.1 bcf/day, a drop of 5.7% week-over-week.
Increased electricity output in the US plays a significant role in boosting natural gas demand from utility providers. The Edison Electric Institute conveyed last Wednesday that total electricity output was up by +10.61% year-over-year in the week ending January 11, reaching 91,182 GWh, while the output over the preceding 52 weeks increased by +2.46% to 4,188,244 GWh.
In its latest weekly report, the EIA indicated that the drop in natural gas inventories was bullish for prices. The -258 bcf draw was near the projected -260, yet far exceeded the five-year average draw. As of January 10, natural gas inventories were up +2.1% year-over-year and 2.5% higher than the seasonal average, indicating healthy supply levels. In Europe, gas storage was reported at 60% capacity as of January 19, notably below the five-year seasonal average of 68% for this time of year.
Baker Hughes also reported a decline in active US natural gas drilling rigs, with the total decreasing by -2 to 98 rigs for the week ending January 17, still modestly above the three-and-a-half-year low of 94 rigs recorded on September 6. Active rigs have been on a downward trend since reaching a five-and-a-quarter-year high of 166 rigs in September 2022, a notable contrast to the pandemic-era low of 68 rigs set in July 2020 (data available since 1987).
On the date of publication,
Rich Asplund
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