U.S. natural gas futures gained about 2% on Thursday on forecasts for heating demand to rise next week when the weather turns much colder and a possible increase in liquefied natural gas (LNG) exports if the Freeport LNG plant in Texas starts to return to service.
A federal report on Thursday also is expected to show a much bigger-than-usual storage build last week when mild weather kept heating demand low.
Analysts forecast U.S. utilities added 84 billion cubic feet (bcf) of gas to storage during the week ended Nov. 4. That compares with an increase of 15 bcf in the same week last year and a five-year (2017-2021) average increase of 20 bcf.
If correct, last week’s increase would push stockpiles to 3.585 trillion cubic feet (tcf), or 1.9% below the five-year average of 3.656 tcf for this time of the year. Big inventory builds this week and last week could boost gas stockpiles to near- or above-normal levels for the first time since January.
On Freeport, analysts said the market remained extremely focused on rumors the plant 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 the Freeport plant 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.
A couple of vessels were waiting to pick up LNG from Freeport, according to Refinitiv data. Prism Diversity and Prism Courage were offshore from the plant, while LNG Rosenrot and Prism Agility were expected to arrive in late November.
But one vessel, Prism Brilliance, which had been waiting outside the Freeport plant, is now headed toward Corpus Christi where Cheniere Energy Inc has an LNG export plant, according to Refinitiv data.
Traders noted power outages from Hurricane Nicole in Florida, where about 210,000 homes and businesses were without power Thursday morning, reduced the amount of gas electric generators have to burn. That reduction in gas demand helped limit the futures price increase.
Front-month gas futures were up 8.5 cents, or 1.5%, to $5.950 per million British thermal units (mmBtu) at 8:26 a.m. EST (1326 GMT).
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 level since hitting a record high in October 2021 for a second day in a row. The market uses implied volatility to estimate likely price changes in the future.
Gas futures are up about 60% 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 $28 at the Japan Korea Marker (JKM) in Asia.
Data provider Refinitiv said that average gas output in the U.S. Lower 48 states has fallen to 98.6 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 98.3 bcfd this week to 120.4 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Wednesday.
The average amount of gas flowing to U.S. LNG export plants has risen to 11.5 bcfd so far in November, up from 11.3 bcfd in October.