U.S. natural gas futures fell about 2% on Thursday on rising output and forecasts for milder weather than previously expected next week that should allow utilities to start injecting gas into storage at the beginning of April.
That price decline came even though the amount of gas flowing to liquefied natural gas (LNG) export plants was on track to hit a monthly record high in March after Freeport LNG’s export plant in Texas exited an eight-month outage in February and returned to near full power this week. Freeport LNG shut last June after a fire.
The price move also came ahead of a federal report expected to show last week’s storage withdrawal was bigger than usual for this time of year because cold weather boosted heating demand for the fuel.
Analysts forecast U.S. utilities pulled 54 billion cubic feet (bcf) of gas from storage during the week ended March 24. That compares with an increase of 15 bcf in the same week last year and a five-year (2018-2022) average decline of 17 bcf.
If correct, last week’s decrease would cut stockpiles to 1.846 trillion cubic feet (tcf), or 20.5% above the five-year average for this time of year.
On their first day as the front-month, gas futures for May delivery on the New York Mercantile Exchange (NYMEX) fell 4.8 cents, or 2.2%, from where it traded on Wednesday to $2.136 per million British thermal units (mmBtu) at 9:08 a.m. EDT (1308 GMT) on Thursday.
That, however, was up about 7% from where the April contract closed when it was still the front-month. April futures expired in technically oversold territory below the psychologically significant $2 per mmBtu at $1.991 per mmBtu on Wednesday, which was the lowest settle for the front-month since September 2020 for a second day in a row.
The market has been extremely volatile this month, with the front-month gaining or losing more than 5% on nine of the past 21 trading days. Gas prices were on track to drop about 22% for the month of March and 52% for the first quarter of 2023.
With gas market volatility rising in recent weeks, open interest in NYMEX gas futures rose to 1.30 million shares on Wednesday, the highest since November 2021.
Freeport LNG’s export plant was on track to pull in about 2.1 billion cubic feet per day (bcfd) of gas on Thursday, up from 1.8 bcfd on Wednesday, according to data provider Refinitiv.
That is a sure sign Freeport LNG was back near full power since, when operating at full power, the plant can turn about 2.1 bcfd of gas into LNG for export.
Total gas flows to all seven big U.S. LNG export plants rose to an average of 13.1 bcfd so far in March, up from 12.8 bcfd in February. That would top the monthly record of 12.9 bcfd in March 2022, before Freeport LNG shut.
The seven big U.S. LNG export plants can turn about 13.8 bcfd of gas into LNG.
SUPPLY AND DEMAND
Refinitiv said average gas output in the U.S. Lower 48 states rose to 98.6 bcfd so far in March, up from 98.1 bcfd in February. The monthly record is 99.9 bcfd in November 2022.
Meteorologists projected the weather in the Lower 48 states would remain mostly near normal through April 13.
With warmer spring-like weather expected to reduce the amount of gas burned to heat homes and businesses, Refinitiv forecast U.S. gas demand, including exports, would drop from 110.6 bcfd this week to 103.5 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Wednesday.