U.S. natural gas futures dropped about 7% to a three-month low on Monday with a collapse in European forwards and on forecasts for milder U.S. weather and lower demand next week than previously expected.
“Gas market bears have multiple price-setting mechanisms to drive prices lower. The two biggest influencers continue to revolve around record-high dry gas production and recently lacking temperature demand, resulting in several back-to-back triple-digit weekly gas storage builds,” analysts at energy consulting firm Gelber & Associates said in a report.
U.S. gas futures have already been declining for the past eight weeks on record output and reduced liquefied natural gas (LNG) exports that have allowed utilities to inject much bigger than normal amounts of gas into storage over the past month.
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 continuing 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.
There are at least three vessels currently heading to Freeport, according to Refinitiv data, including Prism Brilliance (expected to arrive Oct. 18), Prism Diversity (Oct. 27) and Seapeak Methane (Nov. 22), prompting some traders to believe Freeport will return in November. Others in the market, however, believe the plant’s return will be delayed. Officials at Freeport said they remain on track to return the plant in November.
U.S. LNG exports could start to rise later this week if Cove Point returns to service as some traders expect.
Front-month gas futures for November delivery fell 45.4 cents, or 7.0%, to settle at $5.999 per million British thermal units (mmBtu), lowest close since July 6. That was the biggest daily percentage drop since Sept. 22 when prices fell about 9%.
In a bet on colder weather in December, the premium of futures for December 2022 over November 2022 jumped to record high of around 48 cents per mmBtu.
Despite weeks of declines, U.S. futures were still up about 61% 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 $38 per mmBtu in Europe and $31 in Asia.
That puts European forwards down about 8% for the day and on track for their lowest close since June 16 as strong LNG imports boosted the amount of gas in storage in Northwest Europe to healthy levels above 90% of capacity. European prices hit an all-time high of $90.91 on Aug. 25.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 99.6 bcfd so far in October, up from a monthly record of 99.4 bcfd in September.
On a daily basis, however, output fell by a preliminary 2.7 bcfd on Oct. 14 and rose by a preliminary 2.0 bcfd on Oct. 15. If those numbers hold, they would be the biggest one-day output decline and increase since February. But, preliminary data is often revised.
With milder weather coming, Refinitiv projected average U.S. gas demand, including exports, would fall from 100.3 bcfd this week to 94.9 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Friday, while the forecast for next week was lower.
The average amount of gas flowing to U.S. LNG export plants fell to 11.0 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.