U.S. natural gas futures slid about 2% on Thursday on signs some drillers were starting to pull more gas out of the ground and worries about the tremendous oversupply of gas still in storage with a bigger than expected storage build last week.
Prices declined despite forecasts for higher demand next week than previously expected and as more gas flowed to liquefied natural gas export plants.
The U.S. Energy Information Administration said utilities added a bigger-than-expected 84 billion cubic feet of gas into storage during the week ended May 24.
That was bigger than the 78-bcf build analysts forecast in a Reuters poll and compares with an increase of 106 bcf in the same week last year and a five-year (2019-2023) average rise of 104 bcf for this time of year.
Analysts, however, noted last week’s build was still smaller than usual for this time of year after producers cut output over the past few months due to a drop in futures prices to 3-1/2-year lows in February and March.
The build left gas stockpiles about 27% above normal for this time of year.
On its first day as the front-month, gas futures for July delivery on the New York Mercantile Exchange fell 6 cents, or 2.3%, to $2.606 per million British thermal units (mmBtu) at 10:36 a.m. EDT (1436 GMT).
SUPPLY AND DEMAND
Gas output in the Lower 48 U.S. states fell to an average of 97.7 billion cubic feet per day (bcfd) so far in May from 98.2 bcfd in April, according to financial firm LSEG. That compares with a monthly record of 105.5 bcfd in December 2023.
But on a daily basis, output was up about 1.4 bcfd since hitting a 15-week low of 96.3 bcfd on May 1. Energy traders said that increase was a sign that the 56% gain in futures prices over the past four weeks prompted some drillers to start producing more gas.
LSEG forecast gas demand in the Lower 48, including exports, would rise from 93.6 bcfd this week to 95.1 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 12.8 bcfd so far in May with the return of Freeport LNG’s 2.1-bcfd plant in Texas. That compares with a monthly record high of 14.7 bcfd in December 2023.
On a daily basis, LNG feedgas was on track to rise to a preliminary 12-week high of 13.8 bcfd on Thursday, up from 13.6 bcfd on Wednesday and an average of 13.1 bcfd over the prior seven days.
That daily feedgas increase came with small increases in flows to several plants in Louisiana, including Cameron LNG, Cheniere Energy’s Sabine Pass and Venture Global’s Calcasieu Pass. Flows to Freeport were on track to reach a six-month high of 2.1 bcfd.
U.S. exports to Mexico rose to an average of 7.1 bcfd so far in May, up from 6.5 bcfd in April and the current monthly record of 7.0 bcfd in August 2023.
Analysts said U.S. exports to Mexico rose as power generators in Mexico burned more gas to produce electricity to meet record power demand earlier this week and as U.S. energy firm New Fortress Energy prepares to start producing LNG at its Altamira export plant.
(Reporting by Scott DiSavino; Editing by David Holmes and Alison Williams)