U.S. natural gas futures slipped to a fresh two-week low on Tuesday on forecasts for milder weather and less demand over the next two weeks than previously expected.
Warmer-than-normal weather over the past four weeks has already allowed U.S. utilities to stockpile more gas than usual. Analysts expect utilities will keep adding large amounts of gas into storage in coming weeks with production rising and the weather expected to remain mild through at least late October.
Looking ahead, analysts expect U.S. inventories will top 3.5 trillion cubic feet (tcf) by the start of the winter heating season in November, which they said would be a comfortable level even though it falls short of the 3.7 tcf five-year average.
Elsewhere in the world, the situation is much more dire. Many energy-intensive industries have already shut or limited operations in Europe and Asia because dangerously low gas stockpiles in Europe and strong demand in Asia have caused fuel shortages and boosted gas and oil prices to multi-year highs.
In Europe, analysts say gas stockpiles are about 15% below normal for this time of year, raising fears there may not be enough fuel available to heat homes and businesses this winter if the weather is extremely cold.
Even though the market believes the United States will have more than enough fuel for the winter, U.S. prices still soared to a 12-year high last week on expectations energy shortfalls elsewhere in the world will keep competition for U.S. liquefied natural gas (LNG) exports strong for months. Prices in Europe and Asia, while down from last week’s record highs, were still about six times higher than in the United States.
Front-month gas futures for November delivery fell 11.8 cents, or 2.2%, to $5.227 per million British thermal units (mmBtu) at 8:32 a.m. EDT (1232 GMT), putting them on track for their lowest close since Sept. 24 for a second day in a row.
Since closing at its highest since December 2008 last week, a few days of declines in the front-month have boosted the premium of the December contract over November to its highest since March 2020.
Data provider Refinitiv said gas output in the U.S. Lower 48 states rose to an average of 92.2 billion cubic feet per day (bcfd) so far in October from 91.1 bcfd in September. That compares with a monthly record of 95.4 bcfd in November 2019.
Refinitiv projected average U.S. gas demand, including exports, would rise from 84.1 bcfd this week to 85.1 bcfd next week as the weather turns seasonally cooler and more homes and businesses turn on their heaters. Those forecasts, however, were lower than Refinitiv projected on Monday.
With gas prices near $29 per mmBtu in Europe and $33 in Asia, versus just over $5 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States could produce.
Refinitiv said the amount of gas flowing to U.S. LNG export plants slipped from an average of 10.4 bcfd in September to 10.1 bcfd so far in October due to short-term upsets at some Gulf Coast plants and maintenance at Berkshire Hathaway Energy’s Cove Point LNG export plant in Maryland.
Cove Point, however, started taking feedgas on Tuesday as it exits the outage.
But no matter how high global prices rise, the United States only has capacity to turn about 10.5 bcfd of gas into LNG. Global markets will have to wait until later this year to get more from the United States when the sixth liquefaction train at Cheniere Energy Inc’s Sabine Pass and Venture Global Log’s Calcasieu Pass in Louisiana are expected to start producing LNG in test mode.