U.S. natural gas futures fell about 3% on Wednesday to a 21-month low on forecasts for less cold weather and lower heating demand over the next two weeks than previously expected.
That price decline came even though output was on track to drop about 4.0 billion cubic feet per day (bcfd) over the past week to a preliminary one-month low of 93.7 bcfd as winter storms freeze oil and gas wells – known as freeze-offs in the energy industry – in several states, including Texas, Oklahoma, New Mexico and Pennsylvania.
Gas prices have been depressed for weeks due in part to expectations Freeport LNG’s liquefied natural gas (LNG) export plant in Texas was still at least a month away from pulling in big amounts of gas to produce LNG.
On Tuesday, Freeport asked federal regulators for permission to restart one of the plant’s three liquefaction trains, which turn gas into LNG.
Gas prices were also depressed due to the warm weather so far this year.
Despite extreme cold this week, temperatures in the U.S. Lower 48 states averaged about 41.8 degrees Fahrenheit (5.7 Celsius) in January, the warmest for the month since the mercury averaged a record 42.8 F in January 2006, according to data from Refinitiv and the federal government.
Front-month gas futures for March delivery fell 8.5 cents, or 3.2, to $2.599 per million British thermal units (mmBtu) at 9:07 a.m. EST (1407 GMT), putting the contract on track for its lowest close since April 2021.
That kept the contract in oversold territory with a relative strength index (RSI) below 30 for a third day in a row and the 16th time so far this year.
In the spot market, gas prices for Wednesday at the Henry Hub benchmark in Louisiana fell about 6% to $2.65 per mmBtu, their lowest since April 2021.
Meteorologists forecast temperatures across much of the U.S. Lower 48 states would remain mostly colder than normal through Feb. 4 before turning warmer than normal from Feb. 5 through at least Feb. 16.
With milder weather coming, Refinitiv forecast U.S. gas demand, including exports, would drop from 136.4 bcfd this week to 126.5 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Tuesday, while its forecast for next week was lower.
That should allow utilities to continue pulling less gas from storage for a fourth or fifth week in a row. Gas stockpiles were currently about 5% above the five-year (2018-2022) average and are on track to rise to 7% above normal in the federal storage report for the week ended Jan. 27.
The biggest wild card in the gas market remains when Freeport’s export plant will exit a seven-month outage caused by a fire in June 2022.
Freeport is the second-biggest U.S. LNG exporter, and traders expect prices to rise as demand for the fuel climbs when the plant starts pulling in big amounts of gas. The plant can turn about 2.1 bcfd of gas into LNG each day, which is about 2% of total U.S. daily gas production.
Freeport has been pulling in small amounts of gas (about 28 million cubic feet per day) since Jan. 26 when federal regulators approved the company’s plan to start cooling down some pipes.
Several analysts have said they expect Freeport to start producing LNG in mid-February or March, but note it will take a month or more after it starts producing LNG for the plant to reach full capacity.