U.S. natural gas futures dropped about 5% on Tuesday on forecasts for the weather to remain mild for the next two weeks, which should allow utilities to keep injecting gas into storage for the winter through at least mid November.
That price decline came despite forecasts for higher demand over the next two weeks than previously expected and a projected increase in liquefied natural gas (LNG) exports once Freeport LNG’s export plant in Texas returns to service.
Freeport LNG expects its 2.1-billion-cubic-feet-per-day (bcfd) export plant to return to at least partial service in early- to mid-November following an unexpected shutdown on June 8 caused by a pipeline explosion.
At least four vessels were already lined up to pick up LNG at Freeport, according to Refinitiv data. Prism Brilliance and Prism Diversity were waiting off the coast from the plant, while Prism Courage was expected to arrive on Nov. 4 and Grace Freesia in December.
Front-month gas futures fell 28.7 cents, or 4.5%, to $6.068 per million British thermal units (mmBtu) at 8:51 a.m. EDT (1251 GMT). On Monday, the contract soared about 12% to its highest since Oct. 14.
Rapid price changes in recent weeks boosted the contract’s 30-day implied volatility index to its highest since October 2021. The market uses implied volatility to estimate likely price changes in the future.
U.S. gas futures were up about 66% so far this year as much higher 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 $36 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $28 at the Japan Korea Marker (JKM) in Asia.
On Monday, when November was still the TTF front-month, the contract closed around $23 per mmBtu, its lowest close since mid-February. December is now the TTF front-month. TTF closed at a record high of $90.91 on Aug. 25.
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 have prevented the country from exporting more LNG.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to a record 99.37 bcfd in October, topping the prior record of 99.28 bcfd in September.
Daily output was on track to drop about 4.5 bcfd to a preliminary five-month low of 95.7 bcfd on Tuesday. That would be the biggest one-day decline since the 2021 February freeze. Traders, however, noted first of the month preliminary output was almost always unreliable and revised higher later in the month.
With the coming of seasonally cooler weather, Refinitiv projected average U.S. gas demand, including exports, would rise from 98.6 bcfd this week to 101.4 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Monday.
The average amount of gas flowing to U.S. LNG export plants slid to 11.3 bcfd in October due to an annual maintenance outage at the Cove Point LNG plant in Maryland, down from 11.5 bcfd in September. That is 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.
During the first 10 months of 2022, roughly 66%, or 7.0 bcfd, of U.S. LNG exports went to Europe, as shippers diverted cargoes from Asia to fetch higher prices. Last year, just 29%, or about 2.8 bcfd, of U.S. LNG exports went to Europe.