Quick Summary
- December natural gas futures (NGZ25) saw a significant rally, reaching a 7-month high driven by forecasts of colder temperatures in key US regions.
- While rising natural gas production presents a bearish signal, increased electricity output and strong LNG exports provided support to prices.
- Inventory levels remain adequate, with US storage exceeding the 5-year average, despite lower-than-average storage in Europe.
- The number of active US natural gas drilling rigs has climbed to a 2.5-year high, indicating robust production potential.
Natural Gas Prices Surge Amidst Colder Weather Outlook
December Nymex natural gas futures (NGZ25) experienced a notable increase, closing up by +0.168, marking a 4.25% gain.
The upward momentum in December natural gas prices on Friday propelled them to a 7-month high. This surge is primarily attributed to anticipated colder temperatures across the United States in the coming month, which could significantly boost demand for natural gas for heating purposes. Forecaster Vaisala indicated on Friday that weather models showed a shift towards cooler conditions in the Midwest and Eastern United States between November 10th and 14th.
Market Dynamics: Production, Demand, and Exports
Data from BNEF reveals that U.S. (lower-48) dry gas production on Friday stood at 108.9 billion cubic feet per day (bcf/day), representing a year-over-year increase of 6.6%. Concurrently, lower-48 state gas demand reached 79.0 bcf/day, up 10.4% year-over-year. Estimated net flows of liquefied natural gas (LNG) to U.S. export terminals also saw an increase, averaging 17.4 bcf/day for Friday, a 4.7% rise week-over-week, according to BNEF.
Electricity Output and its Impact
A supportive factor for natural gas prices comes from the energy sector’s demand. The Edison Electric Institute reported that U.S. (lower-48) electricity output for the week ending October 25th rose by 1.9% year-over-year to 72,772 gigawatt-hours (GWh). Over the preceding 52-week period ending October 25th, U.S. electricity output increased by 2.9% year-over-year, reaching a total of 4,282,176 GWh.
Production Trends and Forward Forecasts
On the bearish side for natural gas prices, U.S. production continues on an upward trajectory. The Energy Information Administration (EIA) revised its forecast for 2025 U.S. natural gas production upwards by 0.5% on October 7th, projecting 107.14 bcf/day, an increase from September’s estimate of 106.60 bcf/day. Current U.S. natural gas production is nearing record levels, further supported by a recent 2-year high in active U.S. natural gas rigs.
Inventory Levels and Global Storage Comparison
Last Thursday’s weekly EIA report on natural gas inventories was largely neutral. Inventories for the week ended October 24th increased by 74 bcf, aligning with market consensus but exceeding the 5-year weekly average of +67 bcf. As of October 24th, natural gas inventories were up 0.5% year-over-year and stood 4.6% above their 5-year seasonal average, indicating ample supply within the U.S. In contrast, European gas storage levels were at 83% capacity as of October 29th, which is notably below the 5-year seasonal average of 92% for this period.
Drilling Activity Reaches Multi-Year High
Baker Hughes reported on Friday that the number of active U.S. natural gas drilling rigs increased by 4 in the week ending October 31st, reaching a 2.25-year high of 125 rigs. This figure represents a significant increase from the 4.5-year low of 94 rigs reported in September 2024.
Expert Summary
December natural gas futures are trending upwards, driven by colder weather expectations and supported by strong LNG exports and electricity demand. While increasing production and adequate domestic inventories present headwinds, the short-term outlook appears bullish due to seasonal heating demand.