U.S. natural gas futures jumped about 5% on Thursday on a continued drop in output and forecasts for more demand next week than previously expected due to an increase in the amount of gas flowing to liquefied natural gas (LNG) export plants.
The price rise came even though last week’s storage build was slightly bigger than analysts expected.
The U.S. Energy Information Administration (EIA) said utilities added 59 billion cubic feet (bcf) of gas into storage during the week ended April 26.
That was more than the 55-bcf build analysts forecast in a Reuters poll and compares with an increase of 62 bcf in the same week last year and a five-year (2019-2023) average rise of 72 bcf for this time of year.
That leaves gas stockpiles about 35% above normal levels for this time of year.
U.S. gas production has dropped by around 10% so far in 2024 after several energy firms, including EQT and Chesapeake Energy, delayed well completions and cut back on other drilling activities after prices fell to 3-1/2-year lows in February and March.
EQT is currently the biggest U.S. gas producer and Chesapeake is on track to become the biggest producer after its merger with Southwestern Energy.
Front-month gas futures for June delivery on the New York Mercantile Exchange rose 9.4 cents, or 4.9%, to $2.026 per million British thermal units (mmBtu) at 10:44 a.m. EDT (1444 GMT).
A lack of rapid price moves in recent weeks has cut the front-month’s 30-day implied volatility to 51.6%, its lowest level since March 2022.
The market uses implied volatility to estimate likely price changes in the future. At-the-money 30-day implied volatility, a determinant of an option’s premium, has averaged 60.0% so far in 2024, down from 70.3% in 2023 and a five-year (2019-2023) average of 60.1%.
SUPPLY AND DEMAND
Financial firm LSEG said gas output in the Lower 48 U.S. states fell to an average of 95.7 billion cubic feet per day (bcfd) so far in May, down from 98.1 bcfd in April. That compares with a monthly record of 105.5 bcfd in December 2023.
On a daily basis, output was on track to drop by 2.1 bcfd over the past eight days to a preliminary 15-week low of 95.6 bcfd on Thursday.
Meteorologists projected weather across the Lower 48 states would remain mostly warmer than normal through May 10 before turning to near-normal levels in the May 11-17 period.
LSEG forecast gas demand in the Lower 48, including exports, would rise from 91.6 bcfd this week to 92.5 bcfd next week. The forecast for next week was higher than LSEG’s outlook on Wednesday.
Gas flows to the seven big U.S. LNG export plants rose from an average of 11.9 bcfd in April to 12.2 bcfd so far in May with the slow return to service of Freeport LNG’s plant in Texas. That compares with 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 $10 per mmBtu at both the Dutch Title Transfer Facility (TTF) benchmark in Europe and the Japan Korea Marker (JKM) benchmark in Asia.
(Reporting by Scott DiSavino; Editing by Paul Simao)