Strong LNG Demand Could Dampen Nat Gas Selling Pressure

March Natural gas futures continued to slide on Friday despite a massive storage draw last week that was much bigger than usual for a fourth week in a row due to the cold start of 2022. Meanwhile, output recovered from last week’s freezing weather as forecasts calling for less cold and lower heating demand over the next two weeks than previously expected weighed on prices.

Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) reported Thursday that domestic natural-gas supplies fell by 222 billion cubic feet (Bcf) for the week-ended February 4. That compared with the consensus decline of 223 Bcf.

Ahead of the report, Natural Gas Intelligence (NGI) reported Reuters polled 16 analysts, whose estimates ranged from withdrawals of 206 Bcf to 232 Bcf, with a median estimate of 223 Bcf. Projections in a Bloomberg survey were as light as 202 Bcf, with a median of 223 Bcf. NGI modeled a 211 Bcf withdrawal.

Analysts polled by S&P Global Platts forecast a 221 Bcf draw, which pegged the five-year average supply fall for the period at 150 Bcf.

NatGasWeather said, “For Thursday’s EIA weekly storage report, survey averages favor a draw of -221 to -223 Bcf, considerably larger than the 5-year average of -150 Bcf. It was colder than normal over much of the interior U.S., aided by a frigid Arctic blast diving down the Plains into Texas late last week, while warm versus normal over the West and East Coasts. We expect a draw of -226-227 Bcf, which if close would increase deficits to near -210 Bcf.”

Total stocks now stand at 2.101 trillion cubic feet (Tcf), down 441 Bcf from a year ago and 215 Bcf below the five-year average, the government said.

Bearish Factors:  Rising Output, Less Cold

Data provider Refinitiv said output in the U.S. Lower 48 states fell from a record 97.3 billion cubic feet per day (bcfd) in December to 93.9 bcfd in January and 91.2 bcfd in February as wells in several producing regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota and the Appalachia in Pennsylvania, West Virginia and Ohio.

Output has been rising almost daily – hitting 94.2 bcfd on Wednesday – since it dropped to 86.3 bcfd during a winter storm on February 4, its lowest since February 2021.

With cold weather moderating, Refinitiv projected average U.S. gas demand, including exports, would drop from 130.6 bcfd this week to 120.9 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Wednesday.

Wildcard: Russia Could Cut Gas Supplies to Europe

The price action clearly shows the bearish factors are outweighing the bullish factors.

The only bullish factor that traders can identify is the strong global demand for U.S. Liquefied Natural Gas (LFG). But that’s a major bullish factor since there seems to be no end to the surging demand in Asia and the replenishing of low inventories in Europe. With that in mind, the threat that Russia could invade Ukraine and cut gas supplies to Europe at any time is still an important potentially bullish wildcard.

Russia provides 30%-40% of Europe’s gas supplies, totaling about 16.3 bcfd in 2021, according to analysts and U.S. energy data.