U.S. natural gas futures dropped about 5% on Wednesday on forecasts for little change in the late December cold and a failure to break through a key level of technical price resistance for a third day in a row.
In the spot market, meanwhile, U.S. West Coast power and gas prices have almost tripled over the past couple of weeks and were on track to hit multi-year annual highs as freezing weather and snow blankets parts of California and gas pipeline outages and constraints limit flows into the region.
Futures prices fell even though output was on track to drop to a two-month low as extreme cold from North Dakota to Texas caused some oil and gas wells to freeze.
That cold weather should force utilities to pull more gas from storage than usual in coming weeks. Gas stockpiles were about 1.6% below the five-year (2017-2021) average for this time of year.
Traders said the biggest uncertainty for the market remains whether Freeport LNG would restart its liquefied natural gas (LNG) export plant in Texas at the end of the year. Demand for gas will jump once the plant, which can turn 2.1 billion cubic feet per day (bcfd) of gas into LNG, returns to service.
Some analysts, however, do not expect Freeport to return until January, February or later because it will likely take federal regulators longer than Freeport LNG expects to review and approve the plant’s restart plan once the company submits it.
The U.S. Federal Energy Regulatory Commission (FERC), one of the federal regulators that must approve Freeport’s restart, this week called on the company to respond to a lengthy list of requirements, raising new hurdles to its efforts to resume operations.
The Freeport plant shut on June 8 due to an explosion caused by inadequate operating and testing procedures, human error and fatigue, according to a report by consultants hired to review the incident and suggest corrective actions.
Despite growing analysts’ expectations that Freeport will not return until 2023, a couple of vessels – Prism Diversity and Prism Courage – have been waiting in the Gulf of Mexico since at least early November to pick up LNG from the plant. There were also a few vessels sailing toward the plant, with Elisa Larus expected to arrive in late December and Point Fortin and Prism Agility expected in early January.
Front-month gas futures fell 35.3 cents, or 5.1%, to $6.582 per million British thermal units (mmBtu) at 10:02 a.m. EST (1502 GMT).
So far this week, the contract has broken above the 200-day moving average, but has failed to remain above that level, making it a point of key technical resistance.
U.S. gas futures are up about 76% so far this year as much higher global prices feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s war in Ukraine.
Gas was trading at $40 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $33 at the Japan Korea Marker (JKM) in Asia.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 99.7 bcfd so far in December, up from a monthly record of 99.5 bcfd in November.
On a daily basis, however, output was on track to drop 2.3 bcfd to a preliminary two-month low of 97.3 bcfd on Wednesday as freezing weather blankets parts of Texas, Oklahoma and North Dakota, causing well freeze-offs. That would be the biggest daily output decline since mid October.
Energy traders, however, noted preliminary data is often revised later in the day.
With colder weather coming, Refinitiv projected average U.S. gas demand, including exports, would jump from 123.5 bcfd this week to 145.9 bcfd next week.