U.S. natural gas prices fell about 3% on Friday as forecasts for mild weather this week and next, and ample amounts of gas in storage allowed the market to take a break after futures climbed into technically overbought territory in the prior session.
Analysts projected there was currently about 12.1% more gas in storage than normal for this time of year.
Over the past few days, prices soared about 12% to a five-week high on Thursday on forecasts the nation’s weather will turn extremely cold from mid to late January, boosting gas demand to its highest since hitting a record high during winter storm Elliott in December 2022.
Friday’s price decline came despite recent drops in daily output and record gas flows to U.S. liquefied natural gas (LNG) export plants.
Front-month gas futures for February delivery on the New York Mercantile Exchange fell 7 cents, or 2.5%, to $2.751 per million British thermal units (mmBtu) at 10:36 a.m. EST (1536 GMT). On Thursday, the contract closed at its highest since Nov. 24.
For the week, the front month was up about 10% after sliding about 4% last week.
Even though the coldest part of winter was still coming, many traders said winter futures for November-March likely already peaked at $3.608 per mmBtu on Nov. 1 due primarily to recent record production and ample supplies of gas in storage.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the lower 48 U.S. states fell to 107.4 billion cubic feet per day (bcfd) so far in January, down from a monthly record of 108.5 bcfd in December.
Meteorologists projected the nation’s weather would remain mostly warmer than normal through Jan. 11 before turning colder than normal from Jan. 12-20.
With colder weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 135.0 bcfd this week to 135.9 bcfd next week and 150.1 bcfd in two weeks. The forecasts for this week and next were higher than LSEG’s outlook on Thursday.
On a daily basis, total U.S. demand, including exports, would reach 158.2 bcfd on Jan. 16, according to LSEG’s latest forecasts. That would be the most since winter storm Elliott in December 2022 but would fall short of the daily all-time high of 162.5 bcfd on Dec. 23, 2022, according to federal energy data from S&P Global Commodities Insights.
U.S. pipeline exports to Mexico rose to an average of 5.5 bcfd so far in January, up from 4.6 bcfd in December but still well below the monthly record of 7.0 bcfd in August.
Analysts expect exports to Mexico to rise in coming months once U.S.-based New Fortress Energy’s plant in Altamira in Mexico starts pulling in U.S. gas to turn into LNG for export.
Gas flows to the seven big U.S. LNG export plants rose to an average of 14.8 bcfd so far in January, up from a monthly record of 14.7 bcfd in December.
The U.S. became the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar, as much higher global prices fed demand for more exports due in part to supply disruptions and sanctions linked to Russia’s war in Ukraine.
Gas was trading around $11 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $12 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino; Editing by Emelia Sithole-Matarise)