U.S. natural gas futures gained about 3% on Thursday after dropping to a 25-month low in the prior session on rising LNG exports, forecasts for slightly colder weather over the next two weeks than previously expected and a bigger than expected weekly storage draw.
The U.S. Energy Information Administration (EIA) said utilities pulled 217 bcf (billion cubic feet) of gas from storage during the week ended Feb. 3.
That was more than the 195 bcf analysts forecast in a Reuters poll and compares with a decrease of 228 bcf in the same week last year and a five-year (2018-2022) average decline of 171 bcf.
Analysts said it was the first time in 2023 that the weekly withdrawal was bigger than the five-year average because colder than normal weather last week boosted demand for gas to heat homes and businesses.
The price increase also came with the growing belief that Freeport LNG’s export plant in Texas would start pulling in more gas to produce LNG for export in coming weeks.
Many analysts, however, do not expect Freeport to return to full power until mid March or later. A couple of Freeport’s customers – Japan’s JERA and Osaka Gas – have said they do not expect to get LNG from the plant until after March.
Freeport, the second biggest U.S. LNG export plant, shut after a fire in June 2022. The energy market expects gas prices to rise once the plant starts producing LNG again. When operating at full power, Freeport can turn about 2.1 bcf of gas into LNG each day. That is about 2% of total U.S. daily gas production.
Freeport was on track to receive about 69 million cubic feet per day (mmcfd) of pipeline gas on Thursday, according to Refinitiv data. Freeport has received an average of 34 mmcfd of gas since Jan. 26 when federal regulators approved the company’s plan to start cooling parts of the plant. The plant received no gas on Tuesday.
Freeport has said it would start sending gas to one of the plant’s three liquefaction trains, which turn gas into LNG for export. The plant is waiting for permission from federal regulators to start loading LNG to free up space in its storage tanks.
In other LNG news, the amount of gas flowing to U.S. LNG export plants was on track to rise by about 1.0 billion cubic feet per day (bcfd) to a preliminary eight-week high of 13.0 bcfd on Thursday due mostly to an increase in flows to Cheniere Energy Inc’s Sabine Pass export plant in Louisiana.
Front-month gas futures rose 6.3 cents, or 2.6%, to $2.459 per million British thermal units at 10:32 a.m. EST (1532 GMT). On Wednesday, the contract closed at its lowest since December 2020.
After dropping by a record 64% over the prior seven weeks through Feb. 3, the front-month was on track to drop by about 63% over the last eight weeks, which would also be a record loss for that period.
The drop in gas prices coupled with a 6% increase in crude futures so far this week boosted oil’s premium over gas to its highest since January 2020. In recent years that premium has prompted U.S. energy firms to focus drilling activity on finding more oil instead of gas.
The oil-to-gas ratio, or level at which oil trades compared with gas, jumped to 33-to-1 on Thursday, its highest since August 2013. Crude’s average premium has averaged 25 times over gas so far in 2023, 15 times over in 2022 and 20 times over during the past five years (2018-2022). On an energy equivalent basis, oil should trade only six times over gas.