U.S. natural gas futures slid about 2% on Monday to an 11-week low on rising output and reduced demand expectations over the next two weeks, due partly to a drop in liquefied natural gas exports from the shutdown of Freeport LNG’s Texas plant.
Analysts said the Freeport shutdown on June 8 should allow U.S. utilities to quickly rebuild low gas stockpiles for next winter, but will reduce the amount of U.S. gas available to the rest of the world.
That is a problem for Europe where most U.S. LNG has gone as countries there wean themselves off Russian energy after Moscow’s Feb. 24 invasion of Ukraine.
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) of additional gas available to the U.S. market.
On its second to last day as the front month, gas futures for July delivery were down 14.8 cents, or 2.4%, at $6.072 per million British thermal units (mmBtu) at 9:33 a.m. EDT (1333 GMT), putting the contract on track for its lowest close since April 6 for a second day in a row.
That put the front-month down for a sixth day in a row for the first time since February and kept it in technically oversold territory, with a relative strength index (RSI) below 30 for a sixth day in a row for the first time since January 2020.
With futures down 30% over the past two weeks, gas speculators last week 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.
Futures for August, which will soon be the front month, were down about 2% to $6.18 per mmBtu.
Despite recent declines, U.S. gas futures are still up about 62% so far this year as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Russia’s 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 has kept pipeline exports around 3.7 bcfd since the middle of June on the three main lines into Germany – North Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany), and the Russia-Ukraine-Slovakia-Czech Republic-Germany route.
That compares with a recent high of 6.5 bcfd about two weeks ago, and an average of 11.6 bcfd in June 2021.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has slid to 95.1 bcfd so far in June from 95.2 bcfd in May. That compares with a monthly record of 96.1 bcfd in December 2021.
On a daily basis, however, output rose to 96.1 bcfd on Saturday, its highest since December 2021.
With hotter weather coming, Refinitiv projected average U.S. gas demand including exports would rise from 93.9 bcfd this week to 96.3 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Friday.
The amount of gas flowing to U.S. LNG export plants has fallen from an average of 12.5 bcfd in May to 11.2 bcfd so far in June due to the Freeport outage. 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.