U.S. natural gas futures fell about 4% to a two-week low on Wednesday on forecasts for less cold weather and lower heating demand next week than previously expected, and on expectations Freeport LNG will delay the restart of its liquefied natural gas (LNG) export plant in Texas.
A few LNG vessels have turned away from Freeport over the past few days on expectations the plant’s restart will be delayed until December or later, according to ship tracking data from Refinitiv.
Federal pipeline safety regulators released a heavily redacted consultant’s report that blamed inadequate operating and testing procedures, human error and fatigue for the June 8 explosion that shut the Freeport plant.
Freeport had not yet submitted a request to resume service to the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) as of earlier this week. Many analysts believe that means the plant will not return to service until December at the earliest.
Until late last week, Freeport had said repeatedly that the plant was still on track to return to service in November. The company, however, did not mention a November restart, or any restart date, in comments made over the past few days.
Once the 2.1 billion-cubic-feet-per-day (bcfd) Freeport facility restarts, U.S. gas prices will likely rise due to increased demand from the country’s LNG export plants.
On the flip side, the delay in Freeport’s return means less gas is available for Europe to import, which has contributed to prices there spiking around 21% so far this week. Europe needs U.S. gas because Russia slashed the amount of gas it usually exports after several European countries imposed sanctions to punish Moscow for its invasion of Ukraine.
A couple of vessels seem to have given up on a quick restart for Freeport. Prism Brilliance, which waited outside the plant for about three weeks from mid-October, was now waiting outside of Corpus Christi where Cheniere Energy Inc has an LNG export plant. LNG Rosenrot, which was expected to arrive at Freeport in late November, has since turned around in the Atlantic Ocean and was now heading toward Gibraltar, according to Refinitiv data.
Prism Agility still says it is on track for Freeport, but Refinitiv’s ship tracking map shows the vessel as turning east in the Atlantic Ocean.
There are still, however, a couple of vessels waiting outside Freeport: Prism Diversity and Prism Courage.
Front-month gas futures fell 24.9 cents, or 4.1%, to $5.785 per million British thermal units (mmBtu) at 9:23 a.m. EST (1423 GMT), putting it on track for its lowest close since Nov. 1.
Despite the decline, gas futures were still 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 $36 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 average gas output in the U.S. Lower 48 states slid to 99.2 bcfd so far in November, down from a record 99.4 bcfd in October.
With much colder weather coming, Refinitiv projected average U.S. gas demand, including exports, would jump from 122.6 bcfd this week to 126.6 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Tuesday, while its forecast for next week was lower.
The average amount of gas flowing to U.S. LNG export plants rose to 11.8 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.
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 get higher prices. Last year, just 29%, or about 2.8 bcfd, of U.S. LNG exports went to Europe.
Russia, the world’s second-biggest gas producer, has provided about a third of Europe’s gas in recent years, totaling about 18.3 bcfd in 2021. The European Union wants to cut Russian gas imports by two-thirds by the end of 2022 and refill stockpiles to 80% of capacity by Nov. 1 and 90% by Nov. 1 each year beginning in 2023.
Russian gas exports via the three main lines into Germany – Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route – averaged just 1.1 bcfd so far in November, down from 1.2 bcfd in October and well below the 9.8 bcfd seen in November 2021.
Gas stockpiles in northwestern Europe – Belgium, France, Germany and the Netherlands – were about 11% above their five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently around 96% of capacity.
That is much healthier than U.S. gas inventories, which were still about 2% below their five-year norm. Analysts, however, said last week’s build, which will be reported in this week’s storage report, could show U.S. stockpiles rose above normal levels for the first time since January.