U.S. natural gas futures jumped about 7% on Wednesday during what has already been an extremely volatile week of trade on a drop in output at the start of the month and expectations gas demand will rise once the Freeport liquefied natural gas (LNG) export plant in Texas exits an outage.
That price increase came despite forecasts lower demand over the next two weeks with the weather expected to remain mild through at least mid November. That should allow utilities to keep adding gas into storage for a few weeks beyond the usual Oct. 31 end of the injection season.
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 rose 40.7 cents, or 7.1%, to $6.121 per million British thermal units (mmBtu) at 8:06 a.m. EDT (1206 GMT). That follows a rise of 12% on Monday and a drop of 10% on Tuesday.
Rapid price changes in recent weeks have boosted the contract’s 30-day implied volatility index to its highest since October 2021 for a second day in a row. The market uses implied volatility to estimate likely price changes in the future.
The premium of futures for January over December rose to a record high of 37 cents per mmBtu on Tuesday as the market started to give up on extreme cold in December.
In the spot market, meanwhile, gas prices for Wednesday at the Chicago hub fell to their lowest since June 2021 as mild weather keeps heating demand there low.
Overall, U.S. gas futures were still up about 63% 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.
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 fell to 97.3 bcfd so far in November, down from a record 99.4 bcfd in October. Traders, however, noted that early month output figures were 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 98.1 bcfd this week to 100.0 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Tuesday.
The average amount of gas flowing to U.S. LNG export plants rose to 11.5 bcfd so far in November with the return of Berkshire Hathaway Energy’s Cove Point export plant in Maryland from a maintenance outage, up from 11.3 bcfd in October.
That is still well below the monthly record of 12.9 bcfd in March due mostly to the ongoing outage at Freeport. 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.