U.S. natural gas futures dropped about 4% on Wednesday with output near record levels and demand low due to mild weather and reduced liquefied natural gas (LNG) exports, allowing utilities to keep injecting huge amounts of gas into storage for the winter.
In the spot market, meanwhile, gas prices at the Waha hub in the Permian Shale in West Texas fell into negative territory in intraday trade this week as pipeline maintenance prevented gas from leaving the basin. Prices closed at a positive 2 cents per million British thermal units (mmBtu) for Wednesday, their lowest since settling in negative territory in October 2020.
Traders, however, noted futures prices would soon jump higher once December becomes the front-month after the market close on Thursday in part because LNG exports were expected to rise to record levels after a couple of liquefaction plants return to service.
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 on Oct. 1 for a few weeks of planned maintenance and the 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.
At least three vessels were heading to Freeport, Refinitiv data showed. Prism Brilliance was off the coast from the plant, Prism Diversity was expected to arrive Oct. 28 and Prism Courage Nov. 1. While some traders expect Freeport to delay its return to service, company officials have said the plant remains on track to return in November.
On its second to last day as the front-month, gas futures for November delivery fell 19.6 cents, or 3.5%, to $5.417 per mmBtu at 8:13 a.m. EDT (1213 GMT).
Futures for December, which will soon be the front-month, were trading around $5.88 per mmBtu.
Gas futures have been extremely volatile in recent weeks with prices up about 9% so far this week after crashing about 59% to a seven-month low over the prior nine weeks as utilities boosted the amount of gas in storage to healthy levels.
Those weeks of rapid price changes boosted the 30-day implied volatility index to its highest since October 2021. The market uses implied volatility to estimate likely price changes in the future.
Despite weeks of declines, U.S. gas futures were still up about 44% 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 $29 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $31 at the Japan Korea Marker (JKM) in Asia.
Earlier this week, European forwards fell to $27 per mmBtu, their lowest close since June 13, as mild weather and strong LNG imports allowed utilities to boost the amount of gas in storage in northwest Europe to more than 90% of capacity. That put TTF down about 70% since settling at a record $90.91 in August.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states held at 99.4 bcfd so far in October, tying the monthly record in September.
With the coming of seasonally cooler weather, Refinitiv projected average U.S. gas demand, including exports, would rise from 94.5 bcfd this week to 96.9 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Tuesday.
The average amount of gas flowing to U.S. LNG export plants fell to 11.2 bcfd so far in October from 11.5 bcfd in September and well below the 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.