U.S. Natural Gas Mixed as January Contract Expires

The U.S. natural gas market experienced a mixed performance during the expiration of the January Nymex natural gas futures contract, with prices and trading activity influenced by various factors. As the contract approached expiration, traders and investors engaged in short covering, which propelled natural gas prices higher. This phenomenon is common during the expiration of futures contracts, as traders look to minimize their exposure to potential losses. Additionally, the outlook for colder U.S. temperatures that would boost heating demand for natural gas also contributed to the price increase. The U.S. Climate Prediction Center reported a greater than 55% chance that the current El Niño weather pattern would remain strong in the Northern Hemisphere through March, which could lead to above-average temperatures and weigh on natural gas prices. However, AccuWeather predicted that El Niño would limit snowfall across Canada this season and cause above-normal temperatures across North America, which could increase natural gas demand and support prices.

Changes in U.S. electricity output can significantly impact natural gas demand and prices, particularly from utility providers. According to the Edison Electric Institute, total U.S. electricity output in the week ended December 16, 2024, fell by -0.4% year-over-year (y/y) to 78,319,700 GWh (gigawatt hours). This decline in electricity output can negatively affect natural gas demand from utility providers, as they may reduce their consumption of natural gas for electricity generation. Consequently, this decrease in demand can put downward pressure on natural gas prices. For instance, in the week ended December 16, 2024, cumulative U.S. electricity output in the 52-week period fell by -0.7% y/y to 4,092,819,000 GWh, further indicating a decline in electricity demand and, by extension, natural gas demand from utility providers.

LNG net flows to U.S. LNG export terminals played a significant role in influencing natural gas prices and supply dynamics during the period. According to BNEF, LNG net flows to U.S. LNG export terminals on Wednesday were 13.8 bcf/day (+2.2% w/w). This increase in LNG exports contributed to the overall supply of natural gas, which helped to balance the market and put downward pressure on prices. The higher LNG exports also facilitated further coal-to-gas switching in the power sector, boosting the share of natural gas in the U.S. power mix to a record 42% in 2023. This shift in energy sources helped to reduce greenhouse gas emissions and improve air quality.

In conclusion, the expiration of the January Nymex natural gas futures contract, changes in U.S. electricity output, and LNG net flows to U.S. LNG export terminals all contributed to the mixed performance of the U.S. natural gas market during this period. While short covering and the outlook for colder temperatures boosted prices, the decline in electricity output and increased LNG exports put downward pressure on natural gas prices. Investors should closely monitor these factors and their potential impacts on the natural gas market as we move forward.