U.S. natural gas futures slid about 2% on Wednesday to an 11-week low as Hurricane Ian started to cause power outages in Florida, cutting the amount of gas that power generators need to burn to produce electricity.
The U.S. National Hurricane Center projected Ian would cause “catastrophic storm surge, winds and flooding in the Florida Peninsula” on Wednesday. The storm was located about 55 miles (89 km) west of Naples, Florida, and was packing maximum sustained winds of 155 miles (250 km) per hour.
Only about 2% of U.S. gas production comes from the federal offshore Gulf of Mexico, with most coming from shale basins like the Permian in West Texas and the Marcellus in Pennsylvania.
Analysts said storms were more likely to cut demand than supply since they knock out power and can cause liquefied natural gas (LNG) export terminals to shut.
Ian has already knocked out power to around 145,000 customers in Florida, according to data from PowerOutage.us.
In other hurricane news, there were still about 356,000 customers in Puerto Rico and 104,000 in Nova Scotia without power after Hurricane Fiona battered the U.S. island on Sept. 18 and the Canadian province on Sept. 24.
Also weighing on gas prices, demand was expected to decline in October when the Cove Point LNG plant in Maryland shuts for a couple weeks of maintenance. Cove Point consumes about 0.8 billion cubic feet per day (bcfd) of gas.
U.S. gas use has already been reduced for months by the ongoing outage at the Freeport LNG export plant in Texas, leaving more gas for U.S. utilities to inject into stockpiles for next winter.
Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 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.
On its last day as the front-month, gas futures for October delivery on the New York Mercantile Exchange (NYMEX) fell 10 cents, or 1.5%, to $6.551 per million British thermal units (mmBtu) at 9:23 a.m. EDT (1323 GMT), putting the contract on track for its lowest close since July 12.
That kept the front-month in technically oversold territory with a relative strength index (RSI) below 30 for a fifth day in a row first time since June.
Futures for November, which will soon be the front-month, were down about 1% at $6.69 per mmBtu.
With the U.S. Federal Reserve expected to keep raising interest rates, open interest in NYMEX futures fell on Tuesday to its lowest since February 2016 as investors cut back on risky assets like commodities.
In the spot market, gas prices at the Waha Hub in West Texas have plunged over 60% since the start of September to $3.25 per mmBtu for Wednesday, their lowest since December 2021 as pipeline maintenance traps the fuel within the Permian Shale basin, according to data from Refinitiv and energy traders.
Despite recent price declines, U.S. futures were still up about 76% as global gas prices have soared, feeding demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.
Gas was trading around $56 per mmBtu in Europe and $42 in Asia. That was a 9% gain for prices in Europe on concerns Russia could stop gas exports to Europe via Ukraine due to a payment dispute.
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 – have averaged just 1.3 bcfd so far in September, down from 2.5 bcfd in August and 10.8 bcfd in September 2021.