U.S. natural gas futures jumped about 5% to a one-week high on Tuesday as short sellers took profits for a second day after prices last week fell to a 25-month low and as output remains lower than last month following recent extreme cold that froze oil and gas wells in several producing basins.
Also supporting prices was a growing belief that Freeport LNG’s export plant in Texas was on track to start pulling in a lot more gas in coming weeks once it starts producing liquefied natural gas (LNG) for export.
Freeport, however, was on track to receive no gas from pipelines on Tuesday after taking in small amounts over the past 12 days, according to Refinitiv data.
Gas prices jumped higher despite forecasts for milder weather and lower heating demand over the next two weeks than previously expected.
Meteorologists forecast the weather would remain mostly warmer than normal through Feb. 22 except for a few cold days around the Feb. 18-19 weekend. Traders noted that cold on the weekend does not boost gas use as much as during the workweek because usage is lower on weekends when many businesses are shut.
Freeport told Texas state regulators last week that it would start sending gas to one of three liquefaction trains at its long-closed export plant. The plant is waiting for permission from federal regulators to start loading LNG to free up space in its storage tanks. The liquefaction trains turn gas into LNG for export.
Many analysts have said they do not expect the plant to return to full power until mid March or later. A couple of Freeport’s customers – Japan’s JERA and Osaka Gas – have said they do not expect to get LNG from the plant until after March.
Freeport, the second biggest U.S. LNG export plant, shut after a fire in June 2022. The energy market expects gas prices to rise once the plant starts producing LNG again. When operating at full power, Freeport can turn about 2.1 billion cubic feet of gas into LNG each day. That is about 2% of total U.S. daily gas production.
Federal regulators will hold a public meeting on Freeport on Feb. 11 to provide members of the community and other interested parties an opportunity to voice their concerns about Freeport’s restart plans and get an update on what’s happening at the plant.
Front-month gas futures for March delivery rose 11.8 cents, or 4.8%, to $2.575 per million British thermal units at 10:03 a.m. EST (1503 GMT), putting the contract on track for its highest close since Jan. 31. Last week, the contract fell to its lowest since December 2020.
That price increase pushed the contract out of technically oversold territory for the first time in seven days. The contract had been in oversold territory for 19 of the 25 trading days so far this year.
With interest in gas markets rising in recent weeks, open interest in the front-month jumped to nearly 302,000 contracts on Monday, its highest since August 2021 for a sixth day in a row.
At the same time, the number of shares outstanding in the U.S. Natural Gas Fund, an exchange-traded fund (ETF) designed to track daily gas price movements, rose by 14.4 million on Monday to a fresh record high of 117.5 million.
Refinitiv said average gas output in the U.S. Lower 48 states fell to 95.7 billion cubic feet per day (bcfd) so far in February, down from 98.3 bcfd in January. That compares with a monthly record of 99.8 bcfd in November 2022.
With milder weather coming, Refinitiv forecast U.S. gas demand, including exports, would drop from 124.9 bcfd this week to 119.8 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Monday.