U.S. natural gas futures edged up about 2% to a three-week high on Tuesday as output continued to decline as several producers cut back on new drilling after prices fell to a 3-1/2-year low in February.
The price increase came despite a decline in U.S. liquefied natural gas (LNG) and gas pipeline exports and forecasts for mild weather to keep heating demand low through at least mid-March.
Front-month gas futures for April delivery on the New York Mercantile Exchange rose 4.1 cents, or 2.1%, to settle at $1.957 per million British thermal units (mmBtu), the lowest close since Feb. 7.
Prices collapsed to an intraday low of $1.511 per mmBtu on Feb. 27, their lowest since June 2020, as near-record output, mostly mild weather and low heating demand this winter allowed utilities to leave significantly more gas in storage than usual for this time of year.
Analysts estimated current gas stockpiles were around 31% above normal levels.
SUPPLY AND DEMAND
Financial company LSEG said gas output in the U.S. Lower 48 states fell to an average of 100.3 billion cubic feet per day (bcfd) so far in March, down from 104.1 bcfd in February. That compares with a monthly record of 105.5 bcfd in December 2023.
On a daily basis, output was on track to drop by around 6.3 bcfd over the past month to a preliminary six-week low of 98.8 bcfd. That would be the lowest daily production since early February 2023, excluding the massive 17.3-bcfd drop due to freezing wells during a brutal freeze in mid-January.
Traders said the output drop showed that several energy firms, such as Chesapeake Energy, soon to become the biggest U.S. gas producer after its merger with Southwestern Energy, were following through on plans to cut gas drilling this year.
EQT, currently the biggest U.S. gas producer, said on Monday that it would curtail nearly 1 bcfd of production through March.
Meteorologists projected the weather across the Lower 48 states would remain mostly warmer than normal through March 17 before turning seasonally cool from March 18-20.
With cooler weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 109.8 bcfd this week to 111.5 bcfd next week. Those forecasts were lower than LSEG’s outlook on Monday.
U.S. pipeline exports to Mexico fell to an average of 6.9 bcfd so far in March, down from a monthly record of 7.7 bcfd in February, according to LSEG data.
Analysts expect exports to Mexico to rise later in March once U.S.-based New Fortress Energy’s LNG export plant in Altamira in Mexico starts pulling in U.S. gas to liquefy for export.
Gas flows to the seven big U.S. LNG export plants slid to an average of 13.5 bcfd so far in March, down from 13.7 bcfd in February. That compares with a monthly record of 14.7 bcfd in December.
Analysts do not expect U.S. LNG feedgas to return to record levels until Freeport LNG is back at full power, which some market watchers say could happen in mid-March.
(Reporting by Scott DiSavino; editing by Jonathan Oatis and Leslie Adler)