U.S. natural gas futures dropped about 7% to a near three-week low on Thursday on expectations the fire and explosion that shut the Freeport liquefied natural gas (LNG) export plant in Texas on Wednesday will free up gas to help refill low U.S. stockpiles.
Freeport LNG said its export plant in Texas will remain shut for at least three weeks following the explosion, raising the risk of global gas shortages especially in Europe.
But shortages of LNG around the world means more gas will remain in the United States, giving utilities a chance to rapidly rebuild extremely low stockpiles. U.S. storage was currently about 15%, or 337 billion cubic feet (bcf), below normal levels for this time of year, its lowest since April 2019.
Analysts expect the U.S. Energy Information Administration (EIA) to report later Thursday that last week’s storage build was smaller than usual because power generators burned more gas to keep air conditioners humming during a heatwave.
Analysts forecast that U.S. utilities added 96 bcf of gas to storage during the week ended June 3. That compares with an increase of 98 bcf in the same week last year and a five-year (2017-2021) average increase of 100 bcf.
If correct, last week’s increase would boost stockpiles to 1.998 trillion cubic feet (tcf), or 14.6% below the five-year average of 2.339 tcf for this time of the year.
After dropping 6% on Wednesday, front-month gas futures for July delivery fell 58.3 cents, or 6.7%, to $8.116 per million British thermal units (mmBtu) at 9:41 a.m. EDT (1341 GMT), putting the contract on track for its lowest close since May 20.
Traders noted that the two-day collapse in gas futures came despite record power demand in Texas this week, low wind power and a decline in output so far this month.
Even though the weather was seasonally mild in both Pennsylvania and Chicago, next-day gas for Thursday rose to its highest since February 2014 at the Dominion South hub in Pennsylvania and its highest since the February freeze in 2021 in Chicago.
Despite this week’s drop, U.S. gas futures were still up about 118% so far this year as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Russia’s Feb. 24 invasion of Ukraine stoked fears Moscow might cut gas supplies to Europe.
Gas was trading around $27 per mmBtu in Europe and $23 in Asia. That was an 8% gain for European gas prices due to worries about LNG supplies now that Freeport was shut.
U.S. futures lag far behind global prices because the United States is the world’s top producer with all the gas it needs for domestic use, while capacity constraints inhibit additional LNG exports.
Refinitiv said average gas output in the U.S. Lower 48 states fell to 94.8 billion cubic feet per day (bcfd) so far in June from 95.1 bcfd in May. That compares with a monthly record of 96.1 bcfd in December 2021.
The average amount of gas flowing to U.S. LNG export plants fell to 12.4 billion cubic feet per day (bcfd) so far in June from 12.5 bcfd in May, according to data from Refinitiv. That compares with a monthly record of 12.9 bcfd in March. The United States can turn about 13.6 bcfd of gas into LNG.
With the shutdown of Freeport, LNG feedgas fell from a recent high of 12.9 bcfd on Tuesday to around 11.0 bcfd on Wednesday and Thursday, the lowest since mid April. Freeport was pulling in about 2.0 bcfd before the fire.