U.S. natural gas futures eased to a three-week low on Thursday as the market awaits direction from a federal report expected to show last week’s storage build was much bigger than normal for a fourth week in a row due to a cold start to 2022.
Traders said prices were down a bit on forecasts for less cold weather and lower heating demand over the next two weeks than previously expected.
Analysts forecast U.S. utilities pulled a massive 222 billion cubic feet (bcf) of gas from storage during the colder than normal week ended Feb. 4. That compares with a decline of 174 bcf in the same week last year and a five-year (2017-2021) average decline of 150 bcf.
That would also be the first time withdrawals topped 200 bcf for four weeks in a row since February 2014.
If correct, last week’s withdrawal would cut stockpiles to 2.101 trillion cubic feet (tcf), or 9.3% below the five-year average of 2.316 tcf for this time of the year.
After weeks of near record volatility, front-month gas futures for March delivery fell 2.7 cents, or 0.7%, to $3.982 per million British thermal units (mmBtu) at 7:41 a.m. EST (1241 GMT), putting the contract on track for its lowest close since Jan. 20.
Data provider Refinitiv said output in the U.S. Lower 48 states fell from a record 97.3 billion cubic feet per day (bcfd) in December to 93.9 bcfd in January and 91.2 bcfd in February after wells in several producing regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota and the Appalachia in Pennsylvania, West Virginia and Ohio.
Output has been rising almost daily – hitting 94.2 bcfd on Wednesday – since it dropped to 86.3 bcfd during a winter storm on Feb. 4, its lowest since February 2021.
With cold weather moderating, Refinitiv projected average U.S. gas demand, including exports, would drop from 130.6 bcfd this week to 120.9 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Wednesday.
The amount of gas flowing to U.S. liquefied natural gas (LNG) export plants rose to an average of 12.5 bcfd so far in February, which would top January’s monthly record of 12.4 bcfd, as liquefaction trains at Venture Global LNG’s Calcasieu Pass plant in Louisiana enter service. A vessel arrived near Calcasieu on Monday and could pick up the plant’s first LNG cargo this week.
Traders said demand for U.S. LNG would remain strong so long as global gas prices keep trading well above U.S. futures as utilities around the world scramble for cargoes to meet surging demand in Asia and replenish low inventories in Europe – especially with the threat that Russia could invade Ukraine and cut gas supplies to Europe.
Russia provides 30%-40% of Europe’s gas supplies, totaling about 16.3 bcfd in 2021, according to analysts and U.S. energy data.