U.S. natural gas futures dropped about 6% on Friday in what has already been an extremely volatile week on forecasts for less cold and heating demand next week than previously expected.
Traders also noted the market remained focused on unproven rumors that the Freeport liquefied natural gas (LNG) export plant in Texas may not return until December. But with gas prices in Europe down about 13%, traders noted rumors about Freeport were not necessarily the cause of the latest U.S. price drop since a delayed Freeport startup should cause global gas prices to spike higher.
Front-month gas futures fell 36.0 cents, or 5.8%, to settle at $5.879 per million British thermal units (mmBtu).
That put the contract down about 8% for the week after gaining about 15% and 13% during the prior two weeks.
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 in October 2021 for a third day in a row. The market uses implied volatility to estimate likely price changes in the future.
Sources familiar with Freeport LNG’s filings with federal safety regulators told Reuters late Thursday that Freeport LNG has not yet submitted a request to resume service to the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA).
Analysts at investment bank Goldman Sachs, energy consulting firm Gelber & Associates and others have said that Freeport’s lack of a request to resume service likely means the plant will not return until December.
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 explosion that shut the plant on June 8.
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 waiting outside Corpus Christi in Texas where Cheniere Energy Inc has an LNG export plant, according to Refinitiv data.
Gas futures were 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.
On Friday though, prompt prices fell in Europe.
Gas was trading at $30 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 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 has fallen to 98.6 bcfd so far in November, down from a record 99.4 bcfd in October.
With the much colder weather coming, Refinitiv projected average U.S. gas demand, including exports, would jump from 98.2 bcfd this week to 119.9 bcfd next week and 124.2 bcfd in two weeks. The forecast for next week was lower than Refinitiv’s outlook on Thursday.
The average amount of gas flowing to U.S. LNG export plants rose to 11.5 bcfd so far in November, 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.