U.S. natural gas futures fell about 2% to a near three-month low on Wednesday on record output and reduced liquefied natural gas (LNG) exports that should allow utilities to keep injecting more gas into storage than usual in coming weeks.
That price drop came despite forecasts for colder weather and higher heating demand over the next two weeks than previously expected.
Major LNG outages include Berkshire Hathaway Energy’s shutdown of its 0.8-billion-cubic-feet-per-day (bcfd) Cove Point LNG export plant in Maryland for about three weeks of planned maintenance on Oct. 1 and the ongoing shutdown of Freeport LNG’s 2.0-bcfd plant in Texas for unplanned work after an explosion on June 8. Freeport expects the facility to return to at least partial service in early to mid-November.
Front-month gas futures fell 16.1 cents, or 2.4%, to settle at $6.435 per million British thermal units (mmBtu). That matched the close on Oct. 10, which was the lowest settle since July 12.
In a bet on cold weather next winter, traders boosted the premium of futures for November 2023 over October 2023 to 37 cents, its fifth record high in a row.
U.S. futures are up about 73% so far this year as soaring global gas prices feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.
Gas was trading at $45 per mmBtu in Europe and $35 in Asia. Prices in Europe fell to a three-month low of $44.25 on Oct. 7 as strong LNG imports boosted the amount of gas in storage in northwest countries to over 90% of capacity. That compares with an all-time high of $90.91 on Aug. 25.
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 October, the same as September but well below 9.2 bcfd seen in October 2021.
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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 prevent the country from exporting more LNG.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 100.1 bcfd so far in October, up from a monthly record of 99.4 bcfd in September.
With colder weather coming, Refinitiv projected average U.S. gas demand, including exports, would jump from 92.5 bcfd this week to 98.3 bcfd next week. The forecast for next week was higher than Refinitiv’s outlook on Tuesday.
The average amount of gas flowing to U.S. LNG export plants fell to 10.9 bcfd so far in October from 11.5 bcfd in September. 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.
So far this year, most U.S. LNG has gone to countries in Europe as they wean themselves off Russian energy.
Russia, the world’s second-biggest gas producer, has provided about a third of Europe’s gas in recent years, totaling about 18.3 bcfd in 2021. The European Union wants to cut Russian gas imports by two-thirds by the end of 2022 and refill stockpiles to 80% of capacity by Nov. 1 and 90% by Nov. 1 each year beginning in 2023.
Gas stockpiles in northwest Europe – Belgium, France, Germany and the Netherlands – were currently about 7% above their five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently around 93% of capacity.
That is much healthier than U.S. gas inventories, which were still about 8% below their five-year norm.