July Nymex natural gas (NGN22) on Wednesday closed up +0.231 (+3.21%).
Nat-gas prices Wednesday moved sharply higher on carry-over support from a surge in European gas prices. European nat-gas prices jumped more than +20% Wednesday after Russia announced that it is curbing gas supplies via its Nord Stream pipeline to Germany by 60%.
Nat-gas prices also have support from the excessive heat in the U.S., which will prompt electricity providers to boost nat-gas usage to power the increased demand for air-conditioning. The Commodity Weather Group said Wednesday that the central and southern U.S. should face above-normal temperatures at least through next week.
Nat-gas prices Tuesday plunged to a 5-week low on expectations for U.S. nat-gas inventories to build after a fire last week at the Freeport, Texas LNG terminal curtailed U.S. nat-gas exports. The Freeport terminal said Tuesday that it targets 90 days for a partial restart, but a return to full operations isn't expected until later this year. The 90-day timeline is much longer than the three weeks that were earlier anticipated and will lead to an increase in U.S. nat-gas inventories since exports will remain limited. The Freeport LNG terminal receives about 2 bcf, or 2.5%, of the output from the lower 48 U.S. states.
Nat-gas prices have support after Russia recently said that foreign buyers of its gas would need to open special ruble and foreign currency accounts by the end of this month to buy Russian gas. Russia has already halted nat-gas shipments to Demark, Finland, Bulgaria, the Netherlands, and Poland and reduced supplies to Germany for not paying for Russian gas in rubles.
Stronger U.S. nat-gas production is bearish for prices as BNEF data showed lower-48 dry gas production Wednesday at 95.2 bcf, up +3.4% y/y.
Strength in U.S. domestic nat-gas demand is bullish for prices as BNEF data shows lower 48-state nat-gas demand Wednesday was 71.3 bcf, up +7.3% y/y.
A decline U.S. nat-gas exports is bearish for prices as the closure of the Freeport export terminal in Texas reduces U.S. LNG exports. BNEF data shows LNG net flows to U.S. LNG export terminals on Wednesday was 10.5 bcf, down -5.5% w/w.
A decline in U.S. electricity output is bearish for nat-gas demand from utility providers. The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended June 11 fell -5.9% y/y to 81,976 GWh (gigawatt hours). However, cumulative U.S. electricity output in the 52-week period ending June 11 rose +2.5% y/y to 4,091,334 GWh.
As a longer-term bullish factor, the ongoing drought in the U.S. West has drained rivers and reservoirs, with Lake Mead recently falling to a record low. That threatens to curb power produced by hydropower dams and will prompt electric utilities in the U.S. West to boost usage of nat-gas to increase electricity to satisfy power demand for air-conditioning this summer. The U.S. Energy Information Administration said on June 1 that the drought could drive down generation at California's hydro dams between June and September to 7 million megawatt-hours, well below the 13 million megawatt-hour median for summer generation between 1980 and 2020.
The consensus is for Thursday's weekly EIA nat-gas inventories to climb by +91 bcf.
Last Thursday's weekly EIA report was bullish for nat-gas prices as it showed U.S. nat gas inventories rose +97 bcf to 1,999 bcf in the week ended June 3, below expectations of +98 bcf. Inventories remain tight and are down -17.1% y/y and -14.5% below their 5-year average.
Baker Hughes reported last Friday that the number of active U.S. nat-gas drilling rigs in the week ended June 10 was unchanged at a 2-1/2 year high of 151 rigs. Active rigs have more than doubled from the record low of 68 rigs posted in July 2020 (data since 1987).