U.S. natural gas futures fell about 3% on Thursday on expectations last week’s storage build will be near normal despite hotter than usual weather, as the shutdown of Freeport’s liquefied natural gas (LNG) export plant in Texas left more fuel available for utilities to stockpile.
Prices fell despite a drop in daily output this week and forecasts for hotter than normal weather through at least early July, which should keep gas demand from power generators high as consumers crank up their air conditioners to escape the heat.
Analysts forecast U.S. utilities added 74 billion cubic feet (bcf) of gas to storage during the week ended June 24, about even with 73 bcf in the same week last year and a five-year (2017-2021) average increase of 73 bcf.
If correct, last week’s increase would boost stockpiles to 2.243 trillion cubic feet (tcf), or 12.8% below the five-year average of 2.573 tcf for this time of the year.
Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8, so the expected 90-day outage would leave around 180 bcf of gas available to the U.S. market.
Front-month gas futures for August delivery fell 16.1 cents, or 2.5%, to $6.337 per million British thermal units (mmBtu) at 8:05 a.m. EDT (1205 GMT).
That put the contract on track to drop about 22% in June, its biggest monthly decline since December 2018 when it fell 36%.
Despite the decline, U.S. gas futures are still up about 71% so far this year as much higher prices in Europe and Asia feed strong demand for U.S. LNG exports, especially since Russia’s Feb. 24 invasion of Ukraine stoked fears Moscow would cut gas supplies to Europe.
Gas was trading around $45 per mmBtu in Europe and $37 in Asia.
Russia’s pipeline gas exports dropped to just 2.0 bcfd on Wednesday from 3.7 bcfd on Tuesday on the three main lines into Germany – Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route.
That is down from around 6.5 bcfd in mid June and 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 limit LNG exports.
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 and a monthly record of 96.1 bcfd in December 2021.
Daily U.S. gas output was on track to drop 2.4 bcfd over the past four days to a preliminary nine-week low of 93.9 bcfd after hitting a six-month high of 96.2 bcfd on Sunday. Preliminary data is often revised later in the day.
With hotter weather coming, Refinitiv projected average U.S. gas demand including exports would rise from 94.1 bcfd this week to 95.3 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Wednesday.
The average amount of gas flowing to U.S. LNG export plants has dropped to 11.1 bcfd so far in June due to the Freeport outage from 12.5 bcfd in May and a record 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.6 bcfd of gas into LNG.