U.S. natural gas futures eased on Wednesday on forecasts calling for the weather to remain milder than normal through the end of October.
Traders noted prices were down despite a decline in output over the past couple of days, forecasts for higher heating use over the next two weeks than previously expected, and a 6% increase in gas prices in Europe.
Demand for U.S. liquefied natural gas (LNG) exports will remain strong so long as gas prices in Europe and Asia stay much higher than in the United States. Prices in Europe and Asia were trading about six times higher than in the United States due to extremely low gas stockpiles in Europe and insatiable demand for the fuel in Asia.
While utilities in Europe scramble to fill gas inventories before the winter heating season and governments seek ways to control soaring prices, the situation in the United States is much calmer. Yes, energy prices are near multi-year highs and gas stockpiles are about 5% below normal, but there is a growing belief in the market that the United States will have more than enough fuel for the winter.
Analysts expect U.S. gas 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. In Europe, analysts say stockpiles are about 15% below normal for this time of year.
Front-month gas futures fell 2.9 cents, or 0.5%, to $5.476 per million British thermal units (mmBtu) at 8:00 a.m. EDT (1200 GMT).
Data provider Refinitiv said gas output in the U.S. Lower 48 states rose to an average of 92.1 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.
Over the past couple of days, however, daily output fell to a near four-week low of 90.3 bcfd on lower production in the Haynesville and Permian shale basins.
Refinitiv projected average U.S. gas demand, including exports, would rise from 84.8 bcfd this week to 85.6 bcfd next week as the weather turns seasonally cooler and more homes and businesses turn on their heaters. Those forecasts were higher than Refinitiv expected on Tuesday.
With gas prices near $31 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 10.2 bcfd so far in October due to short-term work at some Gulf Coast plants and earlier maintenance at Berkshire Hathaway Energy’s Cove Point LNG export plant in Maryland.
With the return of Cove Point on Tuesday, LNG feedgas, however, rose to a one-month high of 11.1 bcfd on Wednesday.
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.
The amount of gas the export plants pull in from pipelines can exceed the amount of gas they can turn into LNG because the facilities use some of the gas to fuel their operations.