U.S. natural gas futures fell about 3% on Tuesday after failing to break through a key point of technical resistance as overall output continues to rise to record levels and a small and brief decline in gas flowing to liquefied natural gas (LNG) export plants.
That price decline came despite a preliminary one-day drop in output on Tuesday, a preliminary increase in LNG feed gas on Tuesday and forecasts for hotter weather and higher air conditioning demand next week than previously expected.
Extreme heat has already boosted power demand to record highs in several parts of the country, including Texas and other U.S. Central states, as homes and businesses crank up their air conditioners to escape the weather.
Also pressuring gas prices was the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas, which leaves more fuel in the United States for utilities to refill low storage.
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 facility could return around Oct. 22. Some analysts, however, expect the outage to last longer.
Front-month gas futures fell 20.5 cents, or 2.7%, to $7.274 per million British thermal units (mmBtu) at 8:59 a.m. EDT (1259 GMT). On Monday, the contract closed at its highest since June 13.
On the technical side, the front-month failed to break above its 50-day moving average for a second day in a row, making that a key level of resistance.
So far this year, the front-month is up about 94% 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 would cut gas supplies to Europe.
Gas was trading around $48 per mmBtu in Europe and $37 in Asia.
After the shutdown of Nord Stream 1 for maintenance on July 11, Russian gas exports have held around 1.4 bcfd 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 an average of 3.7 bcfd in the month before Nord Stream shut and an average of 9.4 bcfd in July 2021.
The companies operating Nord Stream, led by Russian energy company Gazprom have said the pipe should return around July 21. Analysts, however, said the outage could last longer.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 96.1 bcfd so far in July from 95.3 bcfd in June. That compares with a monthly record high of 96.1 bcfd in December 2021.
On a daily basis, however, output was on track to drop by a preliminary 2.5 bcfd on Tuesday from a six-month high of 97.2 bcfd on Monday. That would be the biggest one-day drop since early February. Preliminary data is often revised later in the day.
Refinitiv projected average U.S. gas demand including exports would slide from 100.9 bcfd this week to 100.1 bcfd next week as extreme heat starts to ease in some parts of the country. The forecast for next week was higher than Refinitiv’s outlook on Monday.
The average amount of gas flowing to U.S. LNG export plants slid to 11.1 bcfd so far in July from 11.2 bcfd in June due to a brief upset at Venture Global LNG’s Calcasieu Pass plant in Louisiana on Monday. That was down from 12.5 bcfd in May and a monthly record of 12.9 bcfd in March due to the Freeport outage.
Feed gas to Calcasieu was expected to return to 1.5 bcfd on Tuesday after sliding to 0.8 bcfd on Monday. That compares with an average of 1.5 bcfd over the past week.