U.S. natural gas futures fell about 5% to a one-week low on Wednesday on rising output and a decline in the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants in recent days.
That price drop came despite forecasts for a little more cold and heating demand next week than previously expected and even as the amount of gas flowing to U.S. LNG export plants was still on track to hit a record high for a second month in a row after Freeport LNG’s export plant in Texas exited an eight-month outage in February.
On its last day as the front-month, gas futures for May delivery on the New York Mercantile Exchange were down 10.9 cents, or 4.7%, at $2.198 per million British thermal units (mmBtu) at 9:16 a.m. EDT (1316 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 12 cents to $2.32 per mmBtu.
Traders said gas futures are often more volatile on expiration day. Over the past year, those contracts gained as much as 6% on expiration day in April 2022, January 2023 and February 2023, and lost as much as 11% in December 2022.
On average, however, the front-month was only down about 0.5% during the past 12 expiration days, which is close to the daily average decline of 0.3% for all front-month closes over the past year.
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 export plants can turn about 13.8 bcfd of gas into LNG. The facilities 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.
On a daily basis, feedgas to the LNG export plants was on track to slide to a two-week low of 13.5 bcfd on Wednesday due mostly to reductions at Cheniere Energy Inc’s Sabine Pass in Louisiana and Corpus Christi in Texas.
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 at a 21-month low of $12 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.
SUPPLY AND DEMAND
U.S. gas futures lag far behind global prices because the United States 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 100.36 bcfd so far in April, up from 99.74 bcfd in March. That was close to the monthly record of 100.45 bcfd in January.
Meteorologists projected the weather in the Lower 48 states would remain mostly colder than normal through May 5 before turning near-normal from May 6 to 11.
With the weather slowly turning seasonally warmer, Refinitiv forecast U.S. gas demand, including exports, would slide from 99.3 bcfd this week to 94.7 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Tuesday.