U.S. natural gas futures dropped over 4% on Wednesday to a three-month low on forecasts for mild winter weather, record output and ample amounts of gas in storage.
Front-month gas futures for January delivery fell 20.1 cents, or 4.4%, to $4.366 per million British thermal units (mmBtu) at 10:50 a.m. EST (1550 GMT), putting the contract on track for its lowest close since Aug. 31 for a second day in a row.
In addition to the collapse in the front-month, the 2022 March-April spread dropped to its lowest in 20 months.
The gas industry calls the March-April spread the “widow maker” because rapid price moves resulting from changing weather forecasts have knocked some speculators out of business, including the Amaranth hedge fund, which lost over $6 billion on gas futures in 2006.
In recent months, global gas prices hit record highs as utilities around the world scrambled for LNG cargoes to replenish extremely low stockpiles in Europe and meet insatiable demand in Asia, where energy shortfalls have caused power blackouts in China.
Following those global gas prices, U.S. futures jumped to a 12-year high in early October, but have since pulled back because the United States has plenty of gas in storage and ample production for the winter. Overseas prices were trading about seven times higher than U.S. futures.
Analysts have said European inventories were about 17% below normal for this time of year, compared with just 2% below normal in the United States.
Data provider Refinitiv said output in the U.S. Lower 48 states jumped to a record average of 96.5 billion cubic feet per day (bcfd) in November, up from 94.2 bcfd in October, easily topping the prior all-time monthly high of 95.4 bcfd in November 2019.
Refinitiv projected average U.S. gas demand, including exports, would rise from 112.5 bcfd this week to 116.8 bcfd next week as the weather turns seasonally colder and homes and businesses crank up their heaters. Those forecasts were higher than Refinitiv’s forecast on Tuesday.
The amount of gas flowing to U.S. LNG export plants averaged 11.4 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. That compares with a monthly record of 11.5 bcfd in April.
With gas prices around $31 per mmBtu in Europe and $36 in Asia, compared with about $4 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.