U.S. natural gas futures fell about 6% on Tuesday in what has already been an extremely volatile couple of weeks on forecasts for warmer weather and lower heating demand through late November than previously expected.
Traders, however, noted that even though the weather will be less cold, it will still be much colder than normal for this time of year during that period.
Futures also gained some support from a decline in output so far this month and expectations the Freeport liquefied natural gas (LNG) export plant in Texas would return to service soon.
Freeport LNG submitted a draft Root Cause Failure Analysis to the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) on Nov. 1, according to sources familiar with the filing. The next step is for Freeport LNG to submit a request to resume service.
Freeport LNG said it still expects the 2.1 billion-cubic-feet-per-day (bcfd) export plant to return to at least partial service in November following an unexpected shutdown on June 8 caused by a pipeline explosion.
Several vessels were lined up to pick up LNG from Freeport, according to Refinitiv data. Prism Brilliance, Prism Diversity and Prism Courage were waiting offshore from the plant, while LNG Rosenrot and Prism Agility were expected in late November.
Futures are likely to be pressured this week by expectations Subtropical Storm Nicole, which was anticipated to strengthen into a hurricane before hitting the West Coast of Florida early Thursday. Traders noted storms usually cause power outages that reduce demand for gas-fired generation.
Front-month gas futures were down 43 cents, or 6.2%, to $6.514 per million British thermal units (mmBtu) at 8:27 a.m. EST (1327 GMT). On Monday, the contract gained about 9% to settle at its highest since Oct. 6.
Rapid price changes over the past couple of weeks – futures gained or lost more than 5% on eight of the past 10 days – 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, meanwhile, was on track to close at a record high of 37 cents per mmBtu as some in the market started to give up on the prospect of extreme cold in December.
Overall, gas futures are up about 74% 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 invasion of Ukraine.
Gas was trading at $33 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $27 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 LNG outage have prevented the country from exporting more LNG.
Data provider Refinitiv said that average gas output in the U.S. Lower 48 states has fallen to 98.4 bcfd so far in November, down from a record 99.4 bcfd in October. Traders, however, noted that early-month output figures are usually revised higher later in the month.
With the coming of seasonally colder weather, Refinitiv projected average U.S. gas demand, including exports, would jump from 98.4 bcfd this week to 121.2 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Monday.
The average amount of gas flowing to U.S. LNG export plants has risen to 11.6 bcfd so far in November, up from 11.3 bcfd in October.