U.S. natural gas futures climbed about 3% on Tuesday on forecasts for colder weather and higher heating demand next week than previously expected and as record amounts of gas flowed to U.S. liquefied natural gas (LNG) export plants.
That price increase came despite near record U.S. output that has allowed utilities to leave more gas in storage to meet heating demand. Analysts forecast U.S. gas stockpiles on Dec. 1 were about 7.2% above normal levels for this time of year.
Front-month gas futures for January delivery on the New York Mercantile Exchange rose 8.1 cents, or 3.0%, to $2.775 per million British thermal units (mmBtu) at 10:09 a.m. EST (1509 GMT).
Despite Tuesday’s price increase, the futures market has been sending signals for weeks that many traders do not expect to see price spikes this winter (November-March) due to record production and ample amounts of gas in storage. In fact, many in the market think futures for this winter (November-March) already peaked in November.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states slid to 107.6 billion cubic feet per day (bcfd) so far in December, down from a record 107.8 bcfd in November.
On a daily basis, output was on track to drop by 2.1 bcfd over the past two days to a preliminary four-week low of 106.1 bcfd on Tuesday. Traders, however, have noted that preliminary data is often revised later in the day.
Meteorologists projected the weather would turn from warmer than normal Dec. 5-10 to near normal from Dec. 11-16 before switching back to warmer than normal from Dec. 17-20.
With seasonally colder weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 121.4 bcfd this week to 125.7 bcfd next week. The forecast for this week was lower than LSEG’s outlook on Monday, while its forecast for next week was higher.
U.S. pipeline exports to Mexico, meanwhile, fell to an average of 3.8 bcfd so far in December, down from 5.6 bcfd in November and a record 7.0 bcfd in August.
Analysts, however, expect exports to Mexico to rise in coming months once U.S. energy company New Fortress Energy’s plant in Altamira starts pulling in U.S. gas to turn into LNG for export in December.
Gas flows to the seven big U.S. LNG export plants rose to an average of 14.4 bcfd so far in December, up from a record 14.3 bcfd in November.
The U.S. is on track to become the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar. Much higher global prices have fed demand for U.S. exports due in part to supply disruptions and sanctions linked to the war in Ukraine.
Gas was trading around $12 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $16 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino, Editing by Nick Zieminski)