Nat-Gas Prices Tumble as Weekly EIA Inventories Jump

Rich Asplund - Barchart - Thu Nov 16

December Nymex natural gas (NGZ23) on Thursday closed down -0.128 (-4.01%).

Nat-gas prices Thursday retreated after weekly EIA nat-gas inventories rose more than expected.   EIA nat-gas inventories rose +60 bcf last week, higher than expectations of +42 bcf and well above the 5-year average for this time of year of +20 bcf.  

A mixed weather outlook was also negative for nat-gas prices.  On Thursday, forecaster Atmospheric G2 said below-normal temperatures are expected to spread throughout the eastern two-thirds of North America from Nov 21-25, although the West is likely to be slightly warmer than usual.  

Lower-48 state dry gas production Thursday was 103.3 bcf/day (+4.2% y/y), according to BNEF.  Lower-48 state gas demand Thursday was 75.4 bcf/day (-23.5% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Thursday were 14.7 bcf/day (+9.9% w/w), according to BNEF.

High inventories caused by carryover from the mild 2022/23 winter and weak heating demand have undercut nat-gas prices.  Gas storage across Europe was 99% full as of November 13, above the 5-year seasonal average of 89% full for this time of year.  U.S. nat-gas inventories as of November 10 were +5.6% above their 5-year seasonal average.

An increase in U.S. electricity output is bullish for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended November 11 rose +0.5% y/y to 71,033 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending November 11 fell -0.4% y/y to 4,098,249 GWh.

The EIA reported Thursday that nat-gas inventories for the week ended November 10 showed an increase of +60 bcf, above the consensus of +42 bcf and well above the 5-year average of +20 bcf.  As of November 10, nat-gas inventories were up +5.2% y/y and were +5.6% above their 5-year seasonal average, signaling ample nat-gas supplies.

Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended November 10 was unchanged at 118 rigs, modestly above the 19-month low of 113 rigs posted September 8.  Active rigs this year have fallen back after climbing to a 4-year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).

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Optimism for increased natural gas prices in 2024 is weakening as we approach withdrawal season with a large storage inventory and mild weather forecasts.  Keeping in mind that the forward price strip is about futures trading (paper trades as opposed to physical gas), the current strip is for an average monthly 2024 price of $3.28/mcf.  This would be below the break even price for many if not all Haynesville operators.  I'm seeing multiple industry articles about operators pressuring field service companies to lower prices.  When operators foresee prolonged depressed prices, they look to lower operating costs as much as possible.

JAN     $3.239

FEB     $3.189

MAR   $3.019

APR    $2.920

MAY   $2.973

JUN     $3.092

JUL     $3.216

AUG   $3.258

SEP     $3.245

OCT    $3.331

NOV   $3.706

DEC    $4.185

2024 MONTHLY AVG PRICE:  $3.28


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