U.S. natural gas futures dropped about 5% to a near two-week low on Monday on a fall in oil prices and an increase in gas output to record levels.
That price drop came despite forecasts for hotter weather over the next two weeks than previously expected, which should prompt power companies to burn more gas to keep air conditioners humming.
Gas-fired plants have provided over 40% of U.S. power over the past several weeks, according to federal energy data, even though gas futures soared about 52% in July in part because coal prices keep hitting fresh record highs. That makes it uneconomic for some generators to use their coal-fired units.
Also weighing on gas futures was the ongoing shutdown of the Freeport liquefied natural gas (LNG) export plant in Texas which has left more gas in the United States for utilities to inject into what are currently extremely low stockpiles.
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 say the outage could last longer.
Front-month gas futures for September delivery on the New York Mercantile Exchange (NYMEX) fell 40.1 cents, or 4.9%, to $7.828 per million British thermal units (mmBtu) at 9:12 a.m. EDT (1312 GMT), putting the contract on track for its lowest close since July 19.
Oil prices, meanwhile, dropped about 5% on Monday as weak manufacturing data from China and Japan weighed on the demand outlook.
Last week, gas speculators boosted their net short futures and options positions on the NYMEX and Intercontinental Exchanges to the most since March 2020, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
So far this year, the front-month was up about 111% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since the amount of gas flowing from Russia to Europe has dropped following Moscow’s invasion of Ukraine on Feb. 24.
Gas was trading around $61 per mmBtu in Europe and $42 in Asia.
The United States became the world’s top LNG exporter during the first half of 2022. But no matter how high global gas prices rise, the United States cannot export any more LNG because its plants were already operating at full capacity.
Russian gas exports 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 – slid to 2.4 bcfd on Sunday from 2.5 bcfd on Saturday due to ongoing work on the Nord Stream pipe.
That compares with an average of 2.8 bcfd in July 2022 and 10.4 bcfd in August 2021.
U.S. gas futures lag far behind global prices because the United States is the world’s top producer, with all the fuel 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 jumped to a record 96.7 bcfd in July from 95.7 bcfd in June. That compares with the prior all-time high of 96.1 bcfd in December 2021.
On a daily basis, however, output was on track to drop 2.4 bcfd over the past few days to a preliminary 96.0 bcfd on Monday after soaring 2.4 bcfd to a daily record high of 98.4 bcfd on Friday. Preliminary data is often changed later in the day.
With hotter weather expected, Refinitiv projected average U.S. gas demand including exports would rise from 99.7 bcfd this week to 100.7 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Friday.