U.S. natural gas futures fell about 4% to an eight-week low on Tuesday on forecasts for less demand over the next two weeks than previously projected and expectations Texas Freeport liquefied natural gas (LNG) export plant shutdown will allow utilities to quickly rebuild low U.S. stockpiles.
That price decline came despite record power demand in Texas and a slow slide in daily gas output.
The Freeport shutdown on June 8 reduced the amount of U.S. gas available to the rest of the world, especially in Europe where most U.S. LNG has gone as countries there wean themselves off Russian energy after Moscow invaded Ukraine.
Analysts said leaving more gas in the United States, however, should give U.S. utilities a chance to rebuild extremely low stockpiles quickly. Freeport, the second-biggest U.S. LNG export plant, consumes about 2 billion cubic feet per day (bcfd) of gas, so a 90-day shutdown would make about 180 billion cubic feet (bcf) more gas available to the U.S. market.
Front-month gas futures for July delivery fell 25.8 cents, or 3.7%, to $6.686 per million British thermal units (mmBtu) at 9:42 a.m. EDT (1342 GMT), putting the contract on track for its lowest close since April 25.
That decline kept the front-month in technically oversold territory with a relative strength index (RSI) below 30 for a second day in a row for the first time since December 2021.
After last week’s 22% futures price drop, gas speculators cut their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges to their lowest since March 2020 when their positions were net short, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
Despite recent declines, U.S. gas futures are still up about 80% 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 $39 per mmBtu in Europe and $34 in Asia.
Russia cut pipeline exports to Europe to 3.7 bcfd on Monday from 3.8 bcfd on Sunday on the three mainlines into Germany: North Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route. That compares with an average of 11.6 bcfd in June 2021.
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.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states slid to 94.9 bcfd so far in June from 95.2 bcfd in May. That compares with a monthly record of 96.1 bcfd in December 2021.
With hotter weather coming, Refinitiv projected average U.S. gas demand, including exports, would rise from 93.1 bcfd this week to 96.7 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Friday before the U.S. Juneteenth holiday on Monday.
The amount of gas flowing to U.S. LNG export plants fell from an average of 12.5 bcfd in May to 11.4 bcfd so far in June due to the Freeport outage, according to Refinitiv. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.6 bcfd of gas into LNG.