Natural Gas Woes Continue

As we discussed last week in Looking to the Futures, natural gas prices have been plagued by the perfect storm of lower demand and higher production throughout the withdrawal season. Lower-48 dry gas production has continued to rise and is nearing the record levels seen last October. Warm weather has decreased demand and caused rising inventories. In the bull camp an jump in U.S. electricity output could provide some support to nat gas prices.

BNEF data released yesterday shows U.S. nat gas production in the lower-48 states has ramped up to 100.1 bcf, up +5.1% y/y. On October 3rd of last year, we saw a record high 103.6 bcf and we are not far off these production levels.

The Baker Hughes report from last Friday shows the number of active nat gas drilling rigs was unchanged at a 6-month high of 162 rigs in the week ending March 24th.

The BNEF report released on Monday indicated Lower-48 state gas demand has decreased -0.8% y/y, down 82.9 bcf/day. LNG net flows to U.S. LNG export terminals were up +2.0% w/w, 12.9 bcf.

Warm temperatures have caused a dramatic drop in heating demand for natural gas. Prices reached their lowest point in over 2 years at the end of February and this January was the sixth warmest in the lower-48 U.S. States since 1895. As of March 20th, nat gas inventories in Europe are 56% full, well above the seasonal 5-year average of 35%.

The EIA report released last Thursday was neutral for nat gas prices. U.S. inventories dropped -72 bcf, which just missed the expected drop of -73. The 5-year average draw for this time of year is -45 bcf. Natural gas inventories are currently +22.7% above their 5-year seasonal average.