U.S. natural gas futures rose about 3% on Wednesday as cold weather continued to boost heating demand for the next week and cut output by freezing oil and gas wells.
That price increase, however, came despite forecasts confirming the weather will turn warmer than normal in late December and early January, which should allow utilities to leave more gas in storage around the start of the new year.
Gas stockpiles are currently about 0.4% below the five-year (2017-2021) average for this time of year.
U.S. gas futures remained 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 fed demand for U.S. liquefied natural gas (LNG) exports due to supply disruptions and sanctions linked to Russia’s war in Ukraine.
Traders said the biggest uncertainty for the market remains when Freeport LNG will restart its LNG export plant in Texas.
Small amounts of gas started to flow to Freeport on Tuesday for the first time since August and continued to flow on Wednesday, according to data provider Refinitiv.
Traders said Freeport is likely using the gas to fuel a power plant at the site, but it was also a possible sign the facility is getting closer to restarting.
After several delays – from October to November to December – the company has said several times this month, including on Tuesday, that the plant is on track to restart by the end of the year, pending regulatory approval.
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.
Whenever Freeport returns, U.S. 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.
Several other ships were also sailing toward the plant, including Elisa Larus, which is expected to arrive in late December, Prism Agility (early January), Kmarin Diamond (mid January) and Wilforce (late January). Point Fortin, which was heading toward Freeport, is now on track to go to Cheniere Energy Inc’s Corpus Christi plant in Texas.
Even without Freeport, the amount of gas flowing to U.S. LNG export plants hit 13.1 bcfd last week, the most since May 28 – 11 days before Freeport shut. That is because the nation’s six other big export plants were operating near full capacity.
In other LNG news, New England was getting another load of much-needed LNG for the winter heating season.
After weeks of extreme volatility, front-month gas futures rose 14.5 cents, or 2.7%, to $5.471 per million British thermal units (mmBtu) by 8:10 a.m. EST (1310 GMT). On Tuesday, the contract fell 9% to settle at its lowest since Oct. 27.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states eased to 99.4 bcfd so far in December, down from a monthly record of 99.5 bcfd in November.
On a daily basis, output was on track to drop about 3.4 bcfd over the past nine days to a preliminary two-month low of 97.2 bcfd on Wednesday as freezing weather covers much of the country, causing well freeze-offs in Texas, Oklahoma, North Dakota and Pennsylvania.