July Nymex natural gas (NGN22) on Wednesday closed down -0.594 (-6.39%).
Nat-gas prices Wednesday morning initially rallied to a new 13-3/4 year nearest-futures high but then plunged and closed sharply lower after a fire broke out at a Texas nat-gas export terminal. The fire at the Freeport LNG terminal, which receives about 2 bcf, or 2.5% of the output from the lower 48 U.S. states, could lead to a buildup in supplies as nat-gas exports are reduced because of the fire.
Nat-gas prices Wednesday initially climbed to a 13-3/4 year high on the outlook for hot U.S. temperatures to persist, which will boost nat-gas demand from electricity providers to power increased air-conditioning usage. Wednesday, the Commodity Weather Group said that above-normal temperatures are expected in the U.S. South, West, and parts of the Midwest at least through June 22.
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 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 95.4 bcf, up +3.2% y/y.
Strong foreign demand for U.S. nat-gas supplies is bullish for prices after BNEF data showed gas flows to U.S. export terminals Wednesday rose by +1.5% w/w to 13.0 bcf.
Weakness in U.S. domestic nat-gas demand is bearish for prices as BNEF data shows lower 48-state nat-gas demand Wednesday was 63.3 bcf, down -7.3% y/y.
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 June 4 rose +8.2% y/y to 80,794 GWh (gigawatt hours). Also, cumulative U.S. electricity output in the 52-week period ending June 4 rose +2.8% y/y to 4,096,496 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 last Wednesday 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 +97 bcf.
Last Thursday's weekly EIA report was bearish for nat-gas prices as it showed U.S. nat gas inventories rose +90 bcf to 1,902 bcf in the week ended May 27, above expectations of +87 bcf, although below the 5-year average for this time of year at +100 bcf. Inventories remain tight and are down -17.8% y/y and -15.1% 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 3 was unchanged at a 2-1/2 year high of 151 rigs. Active rigs have recovered sharply from the record low of 68 rigs posted in July 2020 (data since 1987).
