Nat-Gas Prices Sink to 3-3/4 Year Low on Abundant Supplies

April Nymex natural gas (NGJ24) on Tuesday closed down by -0.040 (-2.38%).

April nat-gas prices Tuesday sank to a 3-3/4 year nearest-futures low. Nat-gas prices have been hammered over the past two months. The overly warm winter in the northern hemisphere and the outlook for warm early spring US temperatures have reduced heating demand and boosted nat-gas inventories. Maxar Technologies said on Monday that forecasts have trended warmer in the southern half of the US, with above-normal temperatures expected from March 30 to April 3.

Nat-gas prices have collapsed this year as an unusually mild winter curbed heating consumption for nat-gas and pushed inventories well above average. As of March 15, US nat-gas inventories were +41.0% above their 5-year seasonal average, signaling abundant nat-gas supplies.

Nat-gas prices are also under pressure after the Freeport LNG nat-gas export terminal in Texas on March 1 shut down one of its three production units due to damage from extreme cold in Texas. The unit reopened partially earlier this month. However, Freeport said that once the production unit is fully reopened, the other two units will be taken down for maintenance, and all three units will not return online until May. The lack of full capacity of the Freeport export terminal limits US nat-gas exports and boosts US nat-gas inventories.

Lower-48 state dry gas production Tuesday was 98.9 bcf/day (-1.0% y/y), according to BNEF. Lower-48 state gas demand Tuesday was 81.2 bcf/day (+4.9% y/y), according to BNEF. LNG net flows to US LNG export terminals Tuesday were 12.9 bcf/day (-0.6% w/w), according to BNEF.

A decrease in US electricity output is negative for nat-gas demand from utility providers. The Edison Electric Institute reported last Wednesday that total US electricity output in the week ended March 16 fell -5.45% y/y to 70,442 GWh (gigawatt hours), and cumulative US electricity output in the 52-week period ending March 16 fell -0.24% y/y to 4,096,176 GWh.

Last Thursday's weekly EIA report was bearish for nat-gas prices since nat-gas inventories for the week ended March 15 rose by +7 bcf, more than expectations of +5 bcf, and well above the 5-year average decline of -42 bcf for this time of year. As of March 15, nat-gas inventories were up +22.7% y/y and were +41.0% above their 5-year seasonal average, signaling ample nat-gas supplies. In Europe, gas storage was 59% full as of March 24, above the 5-year seasonal average of 42% full for this time of year.

Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending March 22 fell by -4 to a 2-year low of 112 rigs. Active rigs have fallen 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.