U.S. natural gas futures dropped almost 8% to a three-week low on Monday on mild weather forecasts and rising output, ignoring a 10% jump in European gas prices after Russian gas giant Gazprom failed to book much pipeline capacity to send additional fuel to Europe.
“The big bid in European gas prices did nothing to stop U.S…. prices from sliding today,” said Bob Yawger, director of energy futures at Mizuho in New York.
In recent weeks, U.S. gas prices rose to their highest levels since 2008 on expectations that record global gas prices would keep demand for U.S. liquefied natural gas (LNG) exports strong as utilities in Europe and Asia scramble to refill stockpiles before the winter heating season.
But no matter how high global prices rise, U.S. LNG export plants were already operating near full capacity and will not be able to produce more LNG until later in the year.
U.S. gas inventories, unlike those in Europe, were in good shape for the winter, with more than enough fuel available for the heating season.
Even so, U.S. oil and gas prices have followed global gas prices higher in recent months and are 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.
Gazprom, meanwhile, only booked about a third of offered additional gas transit capacity via the Yamal-Europe pipeline through Poland for November and has not booked any volumes via Ukraine, auction results showed on Monday.
Front-month gas futures for November delivery fell 42.1 cents, or 7.8%, to settle at $4.989 per million British thermal units (mmBtu), their lowest close since Sept. 23.
The big decline in the front-month November contract boosted the premium of futures for December over November to its highest since November 2010.
Data provider Refinitiv said gas output in the U.S. Lower 48 states has risen 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.
Refinitiv projected average U.S. gas demand, including exports, would rise from 86.6 bcfd this week to 89.7 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 Friday.
With gas prices near $36 per mmBtu in Europe and $34 in Asia, versus around just $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 has averaged 10.4 bcfd so far in October, the same as in September, but was expected to rise in coming weeks as more liquefaction trains exit maintenance outages.
But 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, 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.