U.S. natural gas futures fell about 3% on Tuesday to a one-week low on forecasts for milder weather and lower heating demand over the next two weeks than previously expected.
Prices declined even though the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants remained on track to hit a record high for a second month in April after Freeport LNG’s export plant in Texas exited an eight-month outage in February.
On its second to last day as the front-month, gas futures for May delivery on the New York Mercantile Exchange fell 5.9 cents, or 2.6%, to $2.214 per million British thermal units (mmBtu) at 8:49 a.m. EDT (1249 GMT), putting the contract on track for its lowest close since April 14.
Futures for June, which will soon be the front-month, were down about 6 cents to $2.41 per mmBtu.
Data provider Refinitiv said average gas flows to the seven big U.S. LNG export plants rose to 14.1 billion cubic feet per day (bcfd) so far in April, up from a record 13.2 bcfd in March.
Those seven U.S. LNG export plants can turn about 13.8 bcfd of gas into LNG. But LNG plants can pull in a little more gas than they can turn into LNG because they use some of the fuel to power equipment used to produce LNG.
Some analysts have begun to question whether low gas prices in Europe and Asia could force U.S. LNG exporters to cancel cargoes again this summer after mostly mild weather this winter left massive amounts of gas in storage. In 2020, at least 175 LNG shipments were canceled due to oversupply and weak demand.
Gas was trading near a 21-month low of $13 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and a 22-month low of $12 at the Japan Korea Marker (JKM) in Asia.
For now, however, most analysts say energy security concerns following Russia’s invasion of Ukraine in February 2022 should keep global gas prices high enough to sustain record U.S. LNG exports in 2023.
Gas stockpiles in northwest Europe – Belgium, France, Germany and the Netherlands – were currently about 58% of capacity, keeping the amount of gas in storage about 61% above its five-year (2018-2022) average for this time of year, according to Refinitiv.
That is much more gas in storage than in U.S. inventories, which were currently about 21% above their five-year norm again due to mostly mild weather last winter.
To ensure Europe has enough gas for the winter heating season, the European Union wants utilities to refill stockpiles to 90% of capacity by Nov. 1.
U.S. gas futures lag far behind global prices because the U.S. is the world’s top producer with all the fuel it needs for domestic use, while capacity constraints prevent the country from exporting more LNG.
Refinitiv said average gas output in the U.S. Lower 48 states rose to 100.35 bcfd so far in April, up from 99.74 bcfd in March. That was close to the monthly record of 100.44 bcfd in January.
Meteorologists projected the weather in the Lower 48 states would remain mostly colder than normal through May 4 before turning near normal from May 5-10.
With the weather slowly turning seasonally warmer, Refinitiv forecast U.S. gas demand, including exports, would slide from 99.2 bcfd this week to 94.3 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Monday.