U.S. natural gas futures slid about 2% on Thursday with a drop in oil prices, forecasts for less hot weather over the next two weeks than previously expected and an overall gain in gas output this month.
The price drop also came ahead of a federal storage report expected to show a bigger-than-normal storage build last week due to the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas that left more gas in the United States for utilities to refill low stockpiles.
That storage build came despite extreme heat last week that forced generators to burn lots of gas to keep air conditioners humming.
Analysts forecast U.S. utilities added 47 billion cubic feet (bcf) of gas to storage during the week ended July 15. That compares with an increase of 50 bcf in the same week last year and a five-year (2017-2021) average increase of 41 bcf.
If correct, last week’s increase would boost stockpiles to 2.416 trillion cubic feet (tcf), or 11.5% below the five-year average of 2.729 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. Freeport LNG estimated the facility will return to partial service in October. Some analysts expect the outage to last longer.
Freeport started taking in very small amounts of pipeline gas this week.
A brutal heatwave that began last week has increased power demand for air conditioning to record highs in several parts of the country, including Texas.
In New England, that heat boosted next-day power EL-PK-NPMS-SNL for Thursday by 29% to $258 per megawatt hour, its highest since January 2018, while spot gas soared over 200% to $29.35 per million British thermal unit (mmBtu), its highest since January 2022.
With gas prices that high, traders said it makes sense for some New England generators to burn oil instead of gas to produce electricity.
Front-month gas futures fell 18.8 cents, or 2.4%, to $7.819 per million British thermal units (mmBtu) at 9:15 a.m. EDT (1315 GMT). On Wednesday, the contract soared 10% to close at its highest since June 13.
Oil prices fell by more than 5% earlier in the session after higher U.S. gasoline stockpiles heightened concerns about falling demand.
So far this year, the gas front-month is up 109% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Russia’ s invasion of Ukraine.
Gas was trading around $46 per mmBtu in Europe.
With the shutdown of Nord Stream 1 for maintenance from July 11-21, 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. NG/EU
Russia started pumping gas through Nord Stream on Thursday, allaying some of Europe’s immediate supply fears but not removing the threat of rationing to cope with potential winter shortages.
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 from a six-month high of 97.3 bcfd on Monday to a preliminary one-week low of 94.7 bcfd on Thursday. Preliminary data is often revised later in the day.
Refinitiv projected average U.S. gas demand including exports would slide from 101.1 bcfd this week to 99.7 bcfd next week as extreme heat starts to ease in some parts of the country. The forecast for next week was lower than Refinitiv’s outlook on Wednesday.