U.S. natural gas futures plunged about 17% on Thursday to a three-month low as the shutdown of Freeport LNG’s liquefied natural gas (LNG) export plant in Texas allowed utilities to stockpile more fuel than expected even as hotter weather had generators burning more gas to keep air conditioners humming.
The market extended earlier storage-related losses of around 9% after U.S. pipeline safety regulators said they found unsafe conditions at Freeport and that they will not allow the plant to restart until an outside analysis is complete.
The U.S. Energy Information Administration (EIA) said utilities added 82 bcf of gas to storage during the week ended June 24, exceeding the 74-bcf build analysts forecast in a Reuters poll and increases of 73 bcf in the same week last year and a five-year (2017-2021) average increase of 73 bcf.
“To come in 9 bcf above the five-year average injection, in what was another notably hot week for June, was no small feat and was a direct result of Freeport LNG’s outage, healthy renewable generation and stealthily increasing supply last week,” analysts at Gelber & Associates said in a note.
Front-month gas futures for August delivery fell $1.074, or 16.5%, to settle at $5.424 per million British thermal units (mmBtu), their lowest close since March 29. That was the biggest one-day percentage decline since late January when prices fell about 26%.
For the month, the contract fell about 33% in June, its biggest monthly decline since dropping 36% in December 2018.
That also put the contract down about 4% for the second quarter after rising about 51% during the first quarter as much higher prices in Europe and Asia fed strong demand for U.S. LNG exports. Russia’s Feb. 24 invasion of Ukraine stoked fears Moscow would cut gas supplies to Europe.
Gas was trading around $46 per mmBtu in Europe and $39 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 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 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.