U.S. natural gas futures eased about 1% to a fresh eight-week low on Wednesday on forecasts for less demand over the next two weeks than previously projected and a drop in liquefied natural gas (LNG) exports with the Texas Freeport plant shut down.
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 in February.
Analysts said leaving more gas in the United States, however, should give American 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 on the New York Mercantile Exchange (NYMEX) fell 7 cents, or 1.0%, to $6.738 per million British thermal units (mmBtu) at 9:44 a.m. EDT (1344 GMT), putting the contract on track for its lowest close since April 25 for a second day in a row.
That decline kept the front-month in technically oversold territory with a relative strength index (RSI) below 30 for a third day in a row for the first time since September 2020.
With the U.S. Federal Reserve expected to keep raising interest rates, open interest in NYMEX futures fell on Tuesday to its lowest since August 2016 as investors continued to cut back on risky assets.
Despite recent declines, U.S. gas futures are still up about 81% 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 $40 per mmBtu in Europe and $37 in Asia.
Russia kept pipeline exports to Europe low at 3.7 bcfd on Tuesday, the same as Monday, 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 92.8 bcfd this week to 95.5 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Tuesday.
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.
On a daily basis, output was on track to drop to 10.3 bcfd on Wednesday, the lowest since November 2021, due to small reductions at all of the operating Gulf Coast facilities.