U.S. natural gas futures fell about 2% on Friday on rising output and forecasts for milder weather and less heating demand in mid May than previously expected.
The price decline came despite forecasts for cooler than previously expected weather next week and as 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 after Freeport LNG’s export plant in Texas exited an eight-month outage in February.
Front-month gas futures for June delivery on the New York Mercantile Exchange fell 5.3 cents, or 2.3%, to $2.302 per million British thermal units (mmBtu) by 7:55 a.m. EDT (1155 GMT).
For the week, the contract about 2% higher, putting it up for a third week in a row for the first time since July 2022.
For the month, the front-month was up about 3% after falling about 19% in March.
Data provider Refinitiv said average gas flows to the seven big U.S. LNG export plants had risen to 14.0 billion cubic feet per day (bcfd) so far in April, up from a record 13.2 bcfd in March.
That is higher than the 13.8 bcfd of gas the seven can turn into LNG since the facilities use some of the fuel to power equipment used to produce LNG.
Some analysts have begun to question whether the recent collapse of gas prices in Europe and Asia could force U.S. exporters to cancel LNG cargoes this summer after mostly mild weather over the 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 around $13 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and at a 22-month low of $12 at the Japan Korea Marker (JKM) in Asia.
That puts TTF down about 47% and JKM down about 61% so far this year, which is similar to the 49% drop in futures at the U.S. Henry Hub benchmark in Louisiana.
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 at about 59% of capacity, keeping the amount of gas in storage about 59% above its five-year (2018-2022) average for the time of year, according to Refinitiv.
That is much more gas in storage than in U.S. inventories, which are currently about 22% above their five-year norm again due to mostly mild weather last winter.
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 had risen to 100.4 bcfd so far in April, up from 99.7 bcfd in March and close to the monthly record of 100.5 bcfd in January.
Meteorologists projected the weather in the Lower 48 states would switch from near normal from April 28-29 to colder than normal from April 30-May 6 before becoming near to warmer than normal from May 7-13.
With the weather slowly turning seasonally warmer, Refinitiv forecast U.S. gas demand, including exports, would slide from 99.0 bcfd this week to 95.6 bcfd next week and 91.0 bcfd in two weeks. The forecast for this week was lower than Refinitiv’s outlook on Thursday, while the forecast for next week was higher.