On Wednesday, May Nymex natural gas (NGK25) experienced a rise of +0.104, increasing by 2.63%.
The uptick in natural gas prices was driven by updated US weather forecasts indicating a colder trend for early April, potentially leading to heightened heating demand. The Commodity Weather Group noted that temperatures are expected to be cooler in the eastern US from April 7-11.
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Last month, natural gas surged to a two-year high as concerns grew about tight US natural gas storage levels ahead of the summer air-conditioning demand. BloombergNEF estimates that US gas storage could be 10% below the five-year average this summer.
According to BloombergNEF, dry gas production in the lower 48 states on Wednesday reached 105 billion cubic feet per day (bcf/day), reflecting a year-on-year increase of 2.9%. In contrast, gas demand in the lower 48 states on the same day was 74.2 bcf/day, a decrease of 5.2% year-on-year. The net flows of liquefied natural gas (LNG) to US export terminals were reported at 14.2 bcf/day, down 9.6% week-on-week.
Furthermore, an uptick in US electricity generation bodes well for natural gas demand from utility providers. The Edison Electric Institute revealed that for the week ending March 22, total electricity output in the US (lower-48 states) rose by 0.9% year-on-year to 72,289 gigawatt hours (GWh), with a 3.55% year-on-year increase over the 52-week period ending March 22, totaling 4,239,323 GWh.
In a bullish development for natural gas prices, President Trump lifted the Biden administration’s moratorium on approving gas export projects in January, leading to active consideration of around a dozen LNG export projects. This expansion of US LNG export capacity is likely to bolster demand for US natural gas and consequently support prices.
The consensus anticipates that Thursday’s weekly EIA report will show an increase of +28 bcf in natural gas inventories, exceeding the five-year average for the week ending March 28, which reflected a -13 bcf draw.
The previous week’s EIA report was a negative indicator for natural gas prices, revealing a stockpile increase of +37 bcf for the week ending March 21, surpassing the expected rise of +33 bcf and significantly above the five-year average draw of -31 bcf for this period. As of March 21, natural gas inventories were down 24.0% year-on-year and 6.5% below the five-year seasonal average, indicating tight supply conditions. In Europe, gas storage was only 34% full as of March 31, compared to the five-year seasonal average of 45%.
Baker Hughes reported last Friday that the count of active US natural gas drilling rigs increased by 1 to 103 rigs for the week ending March 28, remaining slightly above the 3.5-year low of 94 rigs recorded on September 6, 2024. Active rig counts have declined since hitting a 5.25-year high of 166 rigs in September 2022, following a pandemic-era low of 68 rigs in July 2020 (data available since 1987).
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On Wednesday, May Nymex natural gas (NGK25) closed at $4.04, marking an increase of $0.104 or 2.63%. This uptick in prices was largely attributed to revised weather forecasts suggesting a colder start to April in the Eastern U.S., which is expected to increase heating demand for natural gas. The Commodity Weather Group indicated that temperatures from April 7-11 are forecasted to be cooler than previously anticipated.
Natural gas prices had recently surged to a two-year high due to concerns regarding tight U.S. storage levels, which could impede supply ahead of the summer air conditioning demands. BloombergNEF has reported that the gas storage levels are currently projected to be 10% below the five-year average for the summer months. As of Wednesday, dry gas production in the Lower 48 states stood at 105 billion cubic feet per day (bcf/day), marking a 2.9% increase year-on-year. However, the demand for natural gas in these states was reported at 74.2 bcf/day, which is a 5.2% decline year-on-year. In addition, the net flows of liquefied natural gas (LNG) to U.S. export terminals fell to 14.2 bcf/day, down 9.6% week-on-week.
Positive signs for future natural gas demand can be observed in the increasing U.S. electricity output. The Edison Electric Institute reported that the total electricity output in the Lower 48 states rose by 0.9% year-on-year to 72,289 gigawatt-hours (GWh) during the week ending March 22. In the 52-week period concluding on March 22, electricity output increased by 3.55% year-on-year to 4,239,323 GWh.
A longer-term bullish scenario for natural gas prices emerged when President Trump reversed the Biden administration’s suspension of gas export project approvals earlier this year. This move enabled the consideration of a backlog of approximately a dozen LNG export projects, thereby increasing U.S. export capacity and subsequently augmenting demand for domestic natural gas.
Expectations around Thursday’s weekly U.S. Energy Information Administration (EIA) report indicated that natural gas inventories likely increased by 28 bcf, surpassing the five-year average for the week ending March 28, which projected a 13 bcf draw. In contrast, the previous week’s EIA report was considered bearish for natural gas prices, as it showed an inventory rise of 37 bcf compared to an expectation of only 33 bcf and far above the five-year average draw of 31 bcf. By March 21, natural gas inventories had decreased by 24% year-on-year and were 6.5% below the five-year seasonal average, indicative of limited supply.
In Europe, the natural gas storage situation is also tightening, with current storage levels at 34% full as of March 31, compared to the five-year seasonal average of 45% full for this date. Drilling activity in the U.S. has seen some fluctuations. According to Baker Hughes, the number of active natural gas drilling rigs increased by one to a total of 103 as of March 28, still above the recent low of 94 rigs from September 6, 2024. This is a decline from the five-and-a-quarter-year high of 166 rigs observed in September 2022, and it represents a notable fall from the pandemic-era low of 68 rigs recorded in July 2020.
In summary, the current market dynamics for natural gas are characterized by a colder weather outlook increasing demand, low inventory levels heading into the summer air-conditioning season, and positive signs in electricity generation. Additionally, potential increases in export capacity could further influence demand and pricing for natural gas in the long term.
