U.S. natural gas futures slipped about 2% to a seven-week low on Wednesday after collapsing more than 8% in the prior session as the U.S. market continues to follow global gas prices lower.
The U.S. price decline also came as U.S. output rises toward a monthly record high and on forecasts for lower heating demand next week than previously expected.
The drop came ahead of a federal storage report expected to show the first smaller than usual weekly storage build in nine weeks.
Gas prices at the Title Transfer Facility in the Netherlands, the European benchmark, were down about 6% on Wednesday after plunging more than 10% on Tuesday.
Russia increased its flow of gas to Europe via Poland and Belarus as well as Ukraine on Wednesday, easing some of Europe’s concerns about tight supplies before winter.
Analysts forecast U.S. utilities added 10 billion cubic feet (bcf) of gas into storage during the week ended Nov. 5. That compares with an increase of 2 bcf in the same week last year and a five-year (2016-2020) average build of 25 bcf.
If correct, last week’s injection would boost stockpiles to 3.621 trillion cubic feet (tcf), which would be 3.1% below the five-year average of 3.737 tcf for this time of year.
In October, global gas prices hit record highs as utilities around the world scrambled for liquefied natural gas (LNG) cargoes to replenish low stockpiles in Europe and meet insatiable demand in Asia, where energy shortfalls have caused power blackouts in China.
Analysts have said that European inventories were about 20% below normal for this time of year, compared with 3% below normal in the United States.
U.S. futures climbed to a 12-year high in early October on expectations LNG demand would remain strong for months, but overseas prices rose by much more because the United States has plenty of gas in storage and ample production.
Despite recent declines, gas prices in Europe and Asia were still trading about five times higher than in the United States.
Front-month gas futures fell 10.8 cents, or 2.2%, to $4.871 per million British thermal units (mmBtu) at 7:59 a.m. EST (1259 GMT), putting the contract on track for its lowest close since Sept. 22.
That also put the contract on track to decline for a fourth day in a row for the first time since late September.
Data provider Refinitiv said output in the U.S. Lower 48 states has averaged 95.8 billion cubic feet per day (bcfd) so far in November, up from 94.1 bcfd in October and a monthly record of 95.4 bcfd in November 2019.
Refinitiv projected average U.S. gas demand, including exports, would jump from 96.3 bcfd this week to 104.2 bcfd next week as the weather turns seasonally colder and homes and businesses crank up their heaters.
The forecasts for next week however were lower than Refinitiv projected on Tuesday, and with output rising, could allow utilities to keep stockpiling gas into mid November.
The amount of gas flowing to U.S. LNG export plants has averaged 11.0 bcfd so far in November, up from 10.5 bcfd in October as the sixth train at Cheniere Energy Inc’s Sabine Pass plant in Louisiana started producing LNG in test mode.
That compares with a monthly record of 11.5 bcfd in April.
With gas prices near $22 per mmBtu in Europe and $32 in Asia, compared with about $5 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States can produce.
But no matter how high global gas prices rise, the United States only has the capacity to turn about 11.1 bcfd of gas into LNG. The rest of the gas flowing to the export plants is used to fuel equipment that produces the LNG.
Global markets will have to wait until later this year to get more, when Venture Global LNG’s Calcasieu Pass in Louisiana starts producing LNG in test mode.