U.S. natural gas futures fell almost 5% on Friday, following a 9% drop in global gas prices, on forecasts the weather in the United States will remain mostly mild through the end of October.
That decline in U.S. prices came despite a slow but steady rise in U.S. liquefied natural gas (LNG) exports as utilities in Europe and Asia scramble to fill gas inventories before the winter heating season and forecasts for U.S. heating demand to increase in two weeks as the weather starts to cool.
But no matter how high global prices rise, the United States was already close to producing LNG at full capacity.
The storage situation in the United States, which is expected to have more than enough gas stockpiled for the winter, is much calmer. Even so, U.S. oil and gas prices have followed global prices higher in recent months and were currently trading at or near multi-year highs.
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 27.7 cents, or 4.9%, to settle at $5.410 per million British thermal units (mmBtu), their lowest close since Oct. 11.
For the week, the front-month fell almost 3%, putting it down for a second week in a row for the first time since August.
Data provider Refinitiv said gas output in the U.S. lower 48 states rose to an average of 92.0 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.
Drillers this week added 12 oil rigs but cut one gas rig, according to data from Baker Hughes, bringing the gas rig count down to its lowest since August even though U.S gas prices soared about 30% since then.
Refinitiv projected average U.S. gas demand, including exports, would rise from 85.0 bcfd this week to 85.2 bcfd next week and 88.9 bcfd in two weeks as the weather turns seasonally cooler and more homes and businesses turn on their heaters. The forecast for next week was lower than Refinitiv expected on Thursday.
With gas prices near $30 per mmBtu in Europe and $33 in Asia, versus around $6 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 had slipped from an average of 10.4 bcfd in September to 10.3 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, however, LNG feedgas rose to a one-month high of 11.1 bcfd on Thursday.
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 LNG’s Calcasieu Pass in Louisiana are expected to start producing LNG in test mode.
Major Chinese energy companies, meanwhile, are in advanced talks to buy more U.S. LNG.