U.S. natural gas futures fell about 4% to a one-week low on Wednesday in what has already been an extremely volatile couple of weeks on forecasts for less cold weather in late November.
Analysts said the market also remained hyper focused on rumors that the Freeport liquefied natural gas (LNG) export plant in Texas may not return in November since it has not yet filed its return to service plan with federal regulators. Demand for gas will rise once Freeport returns.
Freeport LNG, however, has said repeatedly that 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.
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 to submit a request to resume service.
Several vessels were waiting to pick up LNG from Freeport, according to Refinitiv data. Prism Brilliance, Prism Diversity and Prism Courage were offshore from the plant, while LNG Rosenrot and Prism Agility were expected to arrive in late November.
Futures were also under pressure due to what will likely be federal reports showing much bigger-than-usual gas storage builds this week and next, and expectations that Subtropical Storm Nicole will strengthen into a hurricane before hitting the East Coast of Florida Wednesday night and then moving up the U.S. East Coast toward Georgia and the Carolinas on Friday.
Those big inventory builds could boost gas stockpiles to near- or even above-normal levels for the first time since January 2022.
As for Nicole, traders said storms usually cause power outages that reduce demand for gas-fired generation.
Front-month gas futures fell 22.4 cents, or 3.7%, to $5.914 per million British thermal units (mmBtu) at 8:04 a.m. EST (1204 GMT), putting the contract on track for its lowest close since Nov. 1.
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 hitting a record high in October 2021. 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 for a second day in a row as some in the market started to give up on the prospect of extreme cold in December.
Overall, gas futures are up about 58% 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 $35 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 that average gas output in the U.S. Lower 48 states fell to 98.5 bcfd so far in November, down from a record 99.4 bcfd in October.
With the coming of much colder weather, Refinitiv projected average U.S. gas demand, including exports, would jump from 98.6 bcfd this week to 121.4 bcfd next week. Those forecasts were slightly higher than Refinitiv’s outlook on Tuesday.
The average amount of gas flowing to U.S. LNG export plants rose to 11.6 bcfd so far in November, up from 11.3 bcfd in October.