U.S. natural gas futures eased about 1% on Friday after soaring over 14% in the prior session on a slow rise in output and forecasts for less demand next week than previously expected.
Traders also noted the ongoing outage of Freeport LNG’s liquefied natural gas (LNG) export plant in Texas will leave more gas in the United States for utilities to inject into storage for the winter.
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. Freeport LNG has said the plant could return to service by October.
Front-month gas futures fell 8.6 cents, or 1.4%, to $6.211 per million British thermal units (mmBtu) at 8:12 a.m. EDT (1212 GMT). On Thursday, the contract closed at its highest since June 29.
For the week, the front-month gained about 8% after falling 35% during the prior three weeks due mostly to the Freeport outage.
So far this year, the contract was up about 66% 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 would cut gas supplies to Europe.
Gas was trading around $53 per mmBtu in Europe and $40 in Asia.
Since mid-June, Russia has exported around 3.7 bcfd of gas 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 early June and an average of 9.4 bcfd in July 2021.
Analysts expect Russian exports to Europe to drop further next week when Nord Stream shuts for maintenance from July 11-21.
U.S. futures lag far behind global prices because the United States is the world’s top producer, with all the gas it needs domestically, while capacity constraints limit LNG exports.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 95.9 bcfd so far in July from 95.1 bcfd in June. 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 96.1 bcfd this week to 98.1 bcfd next week and 98.9 bcfd in two weeks. The forecast for next week was lower than Refinitiv’s outlook on Thursday.
That heat has already caused power demand in Texas to break records several times this summer.
The average amount of gas flowing to U.S. LNG export plants held steady at 11.2 bcfd so far in July, the same as in June. That was down from 12.5 bcfd in May and a monthly record of 12.9 bcfd in March due to the Freeport outage.
The seven big U.S. export plants can turn about 13.6 bcfd of gas into LNG.
Analysts said the Freeport outage has allowed U.S. utilities to quickly rebuild low gas stockpiles, but reduces the amount of U.S. gas available for export.
That is a problem for Europe where most U.S. LNG has gone as countries there wean themselves off Russian energy.
Russia, the world’s second-biggest gas producer, has provided about 30% to 40% of Europe’s gas, totaling about 18.3 bcfd in 2021. The European Union wants to cut Russian gas imports by two-thirds by the end of 2022 and refill stockpiles to 80% of capacity by Nov. 1, 2022, and 90% by Nov. 1 each year beginning in 2023.
Gas stockpiles in Northwest Europe – Belgium, France, Germany and the Netherlands – were about 9% below the five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently about 56% of capacity.
That is healthier than U.S. inventories, which were around 12% below their five-year norm.