U.S. natural gas futures fell about 4% to an 18-month low on Friday on rising output and forecasts for heating demand to remain low and the weather to stay warmer-than-normal for another week, allowing utilities to leave more gas in storage.
Front-month gas futures for February delivery on the New York Mercantile Exchange fell 13.9 cents, or 3.8%, to $3.556 per million British thermal units at 12:08 p.m. EST (1708 GMT), putting the contract on track for its lowest close since June 25, 2021.
That kept the front-month in technically oversold territory with a relative strength index (RSI) below 30 for a fourth day in a row and an 11th time in the last 12 days.
For the week, the contract was down about 4%, putting it down for a fourth week in a row for the first time since October. During the prior three weeks, the contract lost 44%.
The premium on March futures over April, which the industry calls the widow maker, slid to a record low of 4 cents per mmBtu as some market participants give up hope that extreme cold will bring a price spike later this winter.
The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks. It calls the spread the “widow maker” because rapid price moves resulting from changing weather forecasts have forced some speculators out of business. Among them was the Amaranth hedge fund, which lost more than $6 billion on gas futures in 2006.
Traders said the biggest market uncertainty remains the restart date for Freeport LNG’s export plant in Texas.
At least two LNG vessels gave up on Freeport this week after sources said the company would extend the plant’s seven-month outage until February or later, ship tracking data from Refinitiv showed.
After several delays from October to November and then to December, Freeport said again this week that the LNG plant was on track to return in the second half of January, pending regulatory approvals.
Despite Freeport’s sliding timeline, analysts have long said it would likely take until the first or second quarter of 2023 to restart the plant due to the large amount of work needed to satisfy federal regulators, including training staff in new safety procedures.
Whenever Freeport returns, U.S. gas demand will jump. The plant can turn about 2.1 billion cubic feet per day s(bcfd) of gas into LNG, which is about 2% of U.S. daily production.
Freeport has filed reports with federal regulators about what it is doing to return the plant but has kept those filings confidential for competitive reasons.
A growing number of local and environmental groups have asked regulators in recent weeks to make those filings public so they can comment on whether they think Freeport is doing enough to safely restart the plant.
Several vessels, including Prism Diversity, Prism Courage and Prism Agility, were waiting in the Gulf of Mexico to pick up LNG from Freeport. Some have been there since early November.
Other ships, meanwhile, were sailing toward Freeport, including Prism Brilliance, Kmarin Diamond and Wilforce, which are expected to reach the plant in late January.
U.S. GAS OUTPUT RISING
Data provider Refinitiv said that average gas output in the U.S. Lower 48 states has risen to 98.4 bcfd so far in January, up from 96.7 bcfd in December. That compares with a monthly record of 99.9 bcfd in November 2022.
Refinitiv projected average U.S. gas demand, including exports, would ease from 120.8 bcfd this week to 119.7 bcfd next week as the weather turns milder before rising to 125.1 bcfd when the weather turns colder.