U.S. natural gas futures held at a two-week high on Tuesday as worries that a possible rail strike offset forecasts heating demand would decline as the weather turns milder than normal.
A rail strike would disrupt shipments of coal to utilities, forcing power generators to burn more gas to produce electricity.
Traders also noted the market had questions about whether Freeport will be able to restart its liquefied natural gas (LNG) export plant in Texas in mid December as planned.
Freeport LNG has not yet submitted a full request to the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) to restart the export plant, according to sources familiar with the company’s filings.
This matters because once the 2.1-billion cubic feet per day (bcfd) plant restarts it will consume U.S. gas to turn it into LNG for export, boosting demand for gas at the same time cold winter weather will boost heating demand.
Even though the delayed Freeport restart caused one LNG vessel – LNG Rosenrot – to turn away from the plant last week, several other ships have remained near the facility – some for weeks – including Prism Brilliance, Prism Diversity and Prism Courage. In addition, the Prism Agility was expected to arrive at the plant site in a few days, according to ship tracking data from Refinitiv.
In other LNG news, the Cadiz Knutsen arrived at the Everett LNG terminal in Massachusetts with a cargo of the super-cooled fuel from Trinidad, the first LNG vessel to visit Everett since August, according to Refinitiv data.
But with Everett competing with European buyers willing to pay around $35 per million British thermal units (mmBtu) for gas versus just $7 in the United States, the Massachusetts port has imported only 16.7 billion cubic feet (bcf) of gas as LNG during the first 10 months of this year. That is down from 18.1 bcf during the same period in 2021 and a five-year (2017-2021) average of 33.3 bcf, according to federal energy data.
New England depends on LNG and oil to fuel some power plants on the coldest days when most of the region’s pipeline gas is being used to heat homes and businesses. About half of the power generated in New England comes from gas-fired plants.
Front-month gas futures for December delivery rose 0.3 cent to settle at $6.779 per mmBtu, their highest close since Nov. 7 for a second day in a row.
“Looking ahead as market players thin out even more for the remainder of the Thanksgiving holiday week, bigger price volatility is expected as ‘options expiration’ caps the end of this week,” analysts at energy consulting firm Gelber & Associates told customers in a note. NYMEX options for the December contract expire on Friday.
Rapid price changes in recent weeks – futures have gained or lost over 5% on more than half the trading days so far in November – boosted the contract’s 30-day implied volatility index to its highest since hitting a record in October 2021. The market uses implied volatility to estimate likely price changes in the future.
Gas futures were up about 84% 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 $38 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $29 at the Japan Korea Marker (JKM) in Asia.
With less cold weather coming, Refinitiv projected average U.S. gas demand, including exports, would drop from 126.3 bcfd this week to 113.7 bcfd next week. The forecasts for next week was lower than Refinitiv’s outlook on Monday.