October natural gas prices rose on Tuesday after an initial drop, driven by forecasts for warmer temperatures across the US. Maxar Technologies indicated that warmer weather is expected in the eastern third of the country over the next two weeks, which could lead to increased demand for electricity, particularly for air conditioning, thereby boosting natural gas consumption.
Additional support for natural gas prices came from the potential disruption of production in the Gulf of Mexico due to Tropical Storm Francine, which is predicted to develop into a hurricane. The Gulf accounts for approximately 5% of the US’s total dry gas output, according to the EIA.
On Tuesday, dry gas production in the Lower 48 states was 99 bcf/day, down 2.5% year-on-year, while demand was up by 3% at 71.4 bcf/day, according to BNEF. LNG flows to US export terminals also showed a slight decline, down 1.1% week-on-week at 12.9 bcf/day.
Increased electricity output in the US has further bolstered natural gas demand. The Edison Electric Institute reported a significant rise in electricity production, with total output up by over 6% year-on-year for the week ending 31 August.
Last week’s EIA report also provided a bullish outlook for natural gas prices. Inventories rose by only 13 bcf, much lower than the expected 27 bcf and the 5-year average increase of 51 bcf. Despite this, natural gas inventories remain above both last year’s levels and the 5-year seasonal average, indicating ample supply. In Europe, gas storage was reported to be 91% full as of 21 August, well above the 5-year seasonal average of 83%.
On the drilling front, Baker Hughes reported a slight drop in active natural gas rigs, down to 94, which is a 3-year low. This is a sharp decline from the 5-year high of 166 rigs seen in September 2022, though still higher than the pandemic-era low of 68 rigs in July 2020.
Diversified Energy Company plc (LON:DEC) is an independent energy company engaged in the production, marketing, transportation and retirement of primarily natural gas and natural gas liquids related to its U.S. onshore upstream and midstream assets.
