U.S. natural gas futures slid about 2% on Wednesday on forecasts for less demand over the next two weeks than previously expected and news of a demand-destroying, extended outage of two liquefaction trains at Freeport LNG’s export plant in Texas.
Freeport LNG said it anticipates two of the three liquefaction trains at its liquefied natural gas (LNG) plant will remain out of service for testing and repairs through May.
Front-month gas futures for April delivery on the New York Mercantile Exchange fell 3.7 cents, or 2.1%, to $1.707 per million British thermal units (mmBtu) by 10:50 a.m. EDT (1450 GMT). On Tuesday, the contract closed at its highest since March 11.
Energy traders said futures were supported earlier in the week by a continued drop in U.S. output after gas prices collapsed to a 3-1/2-year low in February.
Prices fell as low as $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 40% above normal levels.
Those low prices were expected to boost U.S. gas use to a record high in 2024, but will cut production for the first time since 2020 when the COVID-19 pandemic destroyed demand for the fuel, according to the U.S. Energy Information Administration’s latest outlook.
Output was already down by around 5% over the past month as several energy firms, including EQT and Chesapeake Energy, delay well completions and cut back on other drilling activities.
In the spot market, mild weather and ample hydropower supplies in the West cut next-day power to power a record low of $1.50 per megawatt hour (MWh) at South Path-15 (SP-15) in Southern California and $2.50 at the Palo Verde hub in Arizona.
The compares with the prior all-time low of $2.25 per MWh in SP-15 on March 12 and was the lowest at Palo Verde since hitting a record low of negative $1.75 in May 2019.
Negative prices mean their is too much power in a region due to low demand and/or transmission constraints, and are used to encourage power generators to shut plants or pay to keep producing power.
Financial firm LSEG said gas output in the lower 48 U.S. 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 high of 105.5 bcfd in December 2023.
LSEG forecast gas demand in the lower 48 states, including exports, would remain around 114.0 bcfd this week and next. Those forecasts were lower than LSEG’s outlook on Tuesday.
Gas flows to the seven big U.S. LNG export plants slid to an average of 13.3 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 all three liquefaction trains at Freeport return to full service.
Freeport said Train 1 will be taken down immediately, Train 2 is offline and Train 3 is operating. Train 3 shut in January during a brutal freeze that damaged one of its motors.
LSEG said the amount of gas flowing to Freeport was on track to rise to 0.9 bcfd on Wednesday from 0.3 bcfd on Tuesday. Each liquefaction train at Freeport can turn about 0.7 bcfd of gas into LNG.
(Reporting by Scott DiSavino Editing by Marguerita Choy)