U.S. natural gas futures fell about 4% to a near four-week low on Tuesday as output soared to a record high over the weekend and on forecasts for lower demand next week than previously expected.
In the U.S. West, meanwhile, spot power prices for Tuesday jumped in California and other states to their highest since California’s electric grid operator imposed rotating outages in August 2020 as a brutal heat wave baked the drought-stricken region for more than a week.
California’s grid operator urged consumers to conserve energy for a seventh day in a row on Tuesday as the heat strains the grid and significantly increases the likelihood of rotating outages.
The decline in futures prices also came as the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas leaves more gas in the United States for utilities to inject into stockpiles for next 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 expects the facility to return to at least partial service in early to mid November.
Front-month gas futures fell 35.7 cents, or 4.1%, to $8.429 per million British thermal units (mmBtu) at 11:17 a.m. EDT (1517 GMT), putting the contract on track for its lowest close since Aug. 10.
Last week, gas speculators boosted their net short futures and options positions on the New York Mercantile and Intercontinental Exchanges for the first time in three weeks to their highest since August, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
So far this year, gas futures were up about 126% as higher prices in Europe and Asia keep demand for U.S. LNG exports strong. Global gas prices have soared due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.
Gas was trading around $67 per mmBtu in Europe and $55 in Asia.
Russian gas exports via 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 – averaged just 1.4 bcfd so far in September, down from 2.5 bcfd in August and 10.8 bcfd in September 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 and the Freeport outage prevents the country from exporting more LNG.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 99.7 bcfd so far in September from a record 98.0 bcfd in August.
With cooler weather coming, Refinitiv projected average U.S. gas demand, including exports, would slide to 92.3 bcfd next week from 96.8 bcfd this week. The forecast for next week was lower than Refinitiv’s outlook on Friday before the U.S. Labor Day holiday on Monday.
The average amount of gas flowing to U.S. LNG export plants rose to 11.2 bcfd so far in September from 11.0 bcfd in August. 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 exports from Freeport is a problem for Europe, where most U.S. LNG has 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% above their five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently around 83% of capacity.
That is much healthier than U.S. gas inventories, which were still about 11% below their five-year norm.