U.S. natural gas futures were little changed on Tuesday as bearish forecasts for less heating demand over the next two weeks than previously expected offset a bullish drop in output as cold weather starts to cause wells to freeze in some producing basins.
The market also is balancing bullish comments from Freeport LNG that its liquefied natural gas export plant was ready to begin the restart process versus bearish expectations that it will still take a lot of time for that plant to actually exit the seven-month outage.
Freeport LNG, the second-largest U.S. LNG exporter, said on Monday that it had completed repairs to its plant and asked U.S. regulators for permission to take early steps to restart the fire-idled facility.
Those steps involve cooling certain pipes – a process Freeport said would take around 11 days – after regulators’ approval. After that pipe cool down process, Freeport said it would go back to regulators to seek permission to start the liquefaction trains that turn gas into LNG.
Freeport’s request meets the company’s last estimate in December that the plant would be ready to commence initial restart activities in the second half of January, pending regulatory approvals. But it also favors what some sources have told Reuters – that Freeport was on track to actually restart in February or later.
Analysts have long said it would likely take until the first or second quarter of 2023 before Freeport could restart due to the large amount of work needed to satisfy federal regulators. That is why analysts were not surprised when Freeport delayed the plant’s planned restart from October to November to December and most recently to January.
Freeport is important because the market expects gas prices and demand to rise once large amounts of pipeline gas starts flowing to the plant. The facility, which shut in a fire on June 8, 2022, can turn about 2.1 billion cubic feet per day (bcfd) of gas when operating at full power. That is about 2% of U.S. daily production.
Front-month gas futures for February delivery were down 1.4 cents, or 0.4%, to $3.433 per million British thermal units (mmBtu) at 8:41 a.m. EST (1341 GMT).
Traders said the biggest uncertainty in the market remains when the Freeport plant will return.
Even though vessels have turned away from Freeport in recent weeks, several tankers were still waiting in the Gulf of Mexico to pick up LNG from the plant, including Prism Diversity since around Oct. 28, Prism Courage since around Nov. 4 and Prism Agility since around Jan. 2 and Corcovado LNG since around Jan. 22.
In addition, other ships were sailing toward Freeport, with both Prism Brilliance and Kmarin Diamond expected to arrive around Jan. 29.
U.S. GAS OUTPUT RISING
Data provider Refinitiv said that average gas output in the U.S. Lower 48 states has risen to 98.7 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.
On a daily basis, however, output was on track to drop about 1.7 bcfd to a preliminary three-week low of 97.4 bcfd on Tuesday as cold weather starts to cause wells to freeze – known as freeze-offs in the energy industry – in some producing basins like the Bakken in North Dakota, the Rockies in Colorado, the Permian in Texas and Appalachia in Pennsylvania.
With colder weather coming, Refinitiv forecast U.S. gas demand, including exports, would jump from 130.1 bcfd this week to 139.0 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Monday.