U.S. natural gas futures fell about 5% to near a three-week low on Monday on record output and forecasts for cooler weather and lower air conditioning demand over the next two weeks than previously expected.
Also weighing on prices was a drop in pipeline exports to Mexico and the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas, which leaves more gas in the United States for utilities to inject into stockpiles for next winter.
Freeport, the second-biggest LNG export plant in the United States, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. Freeport expects to return the facility to at least partial service in early October.
Front-month gas futures for September delivery on the New York Mercantile Exchange (NYMEX) were down 42.9 cents, or 5.3%, to $7.635 per million British thermal units (mmBtu) at 8:50 a.m. EDT (1250 GMT), putting the contract on track for its lowest close since July 19.
Last week, gas speculators boosted their net short futures and options positions on the NYMEX and Intercontinental Exchanges to the most since March 2020 for a second week in a row, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
So far this year, the front-month is up about 107% as much higher prices in Europe and Asia feed strong demand for U.S. LNG exports. Global gas prices soared this year as countries around the world cut their use of Russian energy after Moscow invaded Ukraine on Feb. 24.
Gas was trading around $58 per mmBtu in Europe and $45 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 the country’s plants are 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 – held at 2.5 bcfd on Sunday, the same as Saturday.
That compares with an average of 2.8 bcfd in July 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 has risen to 97.9 bcfd so far in August from a record 96.7 bcfd in July.
With the weather expected to be less hot, Refinitiv projected average U.S. gas demand, including exports, would fall from 100.5 bcfd this week to 97.7 bcfd next week. Those forecasts are lower than Refinitiv’s outlook on Friday.
The average amount of gas flowing to U.S. LNG export plants has slid to 10.8 bcfd so far in August from 10.9 bcfd in July. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.
The reduction in U.S. exports from Freeport is a problem for Europe, where most U.S. gas exports have gone this year as countries there wean themselves off Russian energy.
Gas stockpiles in Northwest Europe – Belgium, France, Germany and the Netherlands – were about 4% below the five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently about 67% of capacity.
That is much healthier than the situation for U.S. inventories, which were about 12% below their five-year norm.