U.S. natural gas futures eased about 1% to a three-week low on Thursday on forecasts for milder weather over the next two weeks than previously expected, ample gas in storage and expectations gas flows to liquefied natural gas (LNG) export plants would remain low through May due to outages at Freeport LNG’s plant in Texas.
Freeport LNG said it anticipates two of the three liquefaction trains at its export 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 1.7 cents, or 1.0%, to $1.666 per million British thermal units (mmBtu) at 9:05 a.m EDT (1305 GMT), putting the contract on track for its lowest close since Feb. 27.
For the week, however, the contract was still up about 1% after falling about 8% last week. Energy traders said futures prices gained support earlier in the week from 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 41% above normal levels.
Those low prices were expected to boost U.S. gas use to a record high in 2024, but 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 (EIA) latest outlook.
Output was already down by around 4% over the past month as several energy firms, including EQT and Chesapeake Energy, delay well completions and cut back on other drilling activities.
EQT is currently the biggest U.S. gas producer and Chesapeake will soon become the biggest producer after its merger with Southwestern Energy.
In the spot market, mild weather and ample hydropower supplies in the West cut prices for next-day gas at the Southern California Border hub to $1.39 per mmBtu, their lowest since July 2020.
SUPPLY AND DEMAND
Financial firm LSEG said gas output in the Lower 48 U.S. states fell to an average of 100.2 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.
Meteorologists projected weather across the Lower 48 would turn from mostly colder than normal from now through March 28 before turning seasonally normal from March 29-April 6.
LSEG forecast gas demand in the Lower 48, including exports, would rise from 113.4 bcfd this week to 114.1 bcfd with the weather turning cooler next week before falling to 108.0 bcfd in two weeks as the weather turns mild. The forecasts for this week and next were higher than LSEG’s outlook on Thursday.
Gas flows to the seven big U.S. LNG export plants fell to an average of 13.2 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 has said Trains 1 and 2 will likely remain down until May for inspections and repairs, while Train 3 was operating. Each liquefaction train at Freeport can turn about 0.7 bcfd of gas into LNG.
(Reporting by Scott DiSavino; Editing by Andrea Ricci)