March Nymex natural gas (NGH24) on Wednesday closed +0.197 (+12.50%).
Nat-gas prices surged Wednesday to a 1-week high and closed sharply higher after Chesapeake Energy Corp said it would cut its nat-gas production by about 20% this year due to market conditions. Last month, Chesapeake Energy merged with Southwestern Energy to become the top U.S. nat-gas producer.
Nat-gas prices have collapsed this year and posted a 3-1/2 year nearest-futures low on Tuesday as an unusually mild winter curbed heating consumption for nat-gas and pushed inventories well above normal. As of February 9, nat-gas inventories were +15.9% above their 5-year seasonal average.
Nat-gas prices are also under pressure from the announcement by the Freeport LNG nat-gas export terminal in Texas on January 26 that it was forced to shut down one of its three production units for a month for repairs after extreme cold in Texas damaged equipment. The closure of the unit will limit U.S. nat-gas exports and increase U.S. nat-gas inventories.
Lower-48 state dry gas production Wednesday was 103.3 bcf/day (+3.2% y/y), according to BNEF. Lower-48 state gas demand Wednesday was 84.9 bcf/day (+0.2% y/y), according to BNEF. LNG net flows to U.S. LNG export terminals Wednesday were 12.9 bcf/day (-7.2% w/w), according to BNEF.
The U.S. Climate Prediction Center said there is a greater than 55% chance the current El Nino weather pattern will remain strong in the Northern Hemisphere through March, keeping temperatures above average and weighing on nat-gas prices. AccuWeather said El Nino will limit snowfall across Canada this season in addition to causing above-normal temperatures across North America.
An increase in U.S. electricity output is positive for nat-gas demand from utility providers. The Edison Electric Institute reported last Wednesday that total U.S. electricity output in the week ended February 10 rose +0.4% y/y to 75,587 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending February 10 fell -0.3% y/y to 4,099,349 GWh.
The consensus is that Thursday's weekly EIA nat-gas inventories will fall by -59 bcf.
Last Thursday's weekly EIA report was bearish for nat-gas prices as nat-gas inventories for the week ended February 9 fell -49 bcf, a smaller draw than expectations of -65 bcf and a much smaller draw than the five-year average for this time of year at -149 bcf. As of February 9, nat-gas inventories were up +11.9% y/y and were +15.9% above their 5-year seasonal average, signaling ample nat-gas supplies. In Europe, gas storage was 65% full as of February 19, above the 5-year seasonal average of 49% full for this time of year.
Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ending February 16 was unchanged at a 5-month high of 121 rigs, moderately above the 2-year low of 113 rigs posted September 8. Active rigs have fallen back since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
