U.S. natural gas futures dropped about 6% on Friday in what has already been a volatile week of trade on forecasts for less cold weather and heating demand later in December than previously expected.
That keeps U.S. gas futures on track for their most volatile year ever. Both implied and historic volatility were expected to hit record highs in 2022 as soaring global gas prices this year feed demand for U.S. liquefied natural gas (LNG) exports due to supply disruptions and sanctions linked to Russia’s war in Ukraine.
Friday’s price drop, meanwhile, came despite an increase in gas flows to U.S. LNG export plants and a drop in output this week as extreme cold from North Dakota to Texas caused oil and gas wells to freeze.
Traders said the biggest uncertainty for the market remains when Freeport LNG will restart its LNG export plant in Texas.
After several delays from October to November to December, the company now says the plant is on track to restart by the end of the year.
Many analysts, however, do not expect Freeport to return until the first quarter of 2023 because the company still has a lot of work to do to satisfy federal regulators before the plant is ready to restart.
Once Freeport returns, demand for gas will jump. The plant can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG for export, which is about 2% of U.S. daily production.
Freeport shut on June 8 after a pipe failure caused an explosion due to inadequate operating and testing procedures, human error and fatigue, according to a report by consultants hired to review the incident and suggest action.
A couple of vessels – Prism Diversity and Prism Courage – have been waiting in the Gulf of Mexico to pick up LNG from Freeport since at least early November. There are also several other ships sailing toward the plant, including Elisa Larus, which is expected to arrive in late December, Point Fortin and Prism Agility (early January) and Wilforce (late January).
Even without Freeport, the amount of gas flowing to U.S. LNG export plants hit 13.0 bcfd on Thursday, the most since June 4 – four days before Freeport shut. That is because the nation’s six other big export plants were operating near full capacity.
Front-month gas futures fell 42.1 cents, or 6.0%, to $6.549 per million British thermal units (mmBtu) at 10:15 a.m. EST (1515 GMT).
So far this week, gas futures have jumped over 5% on Monday and Tuesday, dropped over 7% on Wednesday and jumped over 8% on Thursday.
For the week, the contract was up about 4% after easing about 1% last week.
Gas futures were up about 74% 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 $37 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 99.6 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 about 2.4 bcfd over the past four days to a preliminary five-week low of 98.3 bcfd on Friday as freezing weather blankets parts of Texas, Oklahoma and North Dakota, causing well freeze-offs.
With colder weather coming, Refinitiv projected average U.S. gas demand, including exports, would jump from 123.5 bcfd this week to 142.6 bcfd next week and 152.1 bcfd in two weeks. The forecast for this week and next were lower than Refiniv’s outlook on Thursday.