U.S. natural gas futures slid about 3% to an eight-month low on Tuesday on near-record output, ample supplies of the fuel in storage and forecasts of cooler weather and lower demand than previously expected through late August.
The price decline was accompanied by a drop in daily gas flows to liquefied natural gas export plants and the approach of a storm that could hit the U.S. East Coast as a demand-destroying hurricane next week.
Front-month gas futures for September delivery on the New York Mercantile Exchange fell 8 cents, or 2.7%, to $2.874 per million British thermal units by 9:34 a.m. EDT (1334 GMT), putting the contract on track for its lowest close since November 15. The U.S. National Hurricane Center projected Tropical Storm Erin will strengthen into a major hurricane as it moves west across the Atlantic Ocean toward the Bahamas over the next week.
Analysts have said that Atlantic storms usually cut demand and gas prices by shutting LNG export plants and knocking out power to millions of homes and businesses, which reduces LNG export feedgas and the amount of gas electric generators need to burn to keep the lights on.
More than 40% of the electricity produced in the U.S. comes from gas-fired power plants.
SUPPLY AND DEMAND
Financial group LSEG said average gas output in the Lower 48 states has risen to 108.3 billion cubic feet per day so far in August, up from July’s record monthly high of 107.9 bcfd.
On a daily basis, however, output has dropped about 2.9 bcfd to a preliminary one-month low of 106.8 bcfd on Tuesday since hitting a daily record high of 109.7 bcfd on July 28. Preliminary numbers are often revised later in the day.
Meteorologists forecast the weather would remain hotter than normal through at least August 27 but would be cooler than previously forecast.
Despite a hotter than usual summer, record output has allowed energy companies to inject more gas into storage than usual in recent months. Analysts said gas stockpiles were about 6% above normal levels for this time of year and likely to keep growing in coming weeks.
LSEG projected average gas demand in the Lower 48 states, including exports, would ease to 109.6 bcfd next week from 110.0 bcfd this week. Those forecasts were lower than LSEG’s outlook on Monday.
The average amount of gas flowing to the eight big U.S. LNG export plants has risen to 16.2 bcfd so far in August, up from 15.5 bcfd in July. That compares with a record monthly high of 16.0 bcfd in April.
On a daily basis, LNG export feedgas was on track to slide from a four-month high of 16.9 bcfd on Sunday to 16.6 bcfd on Monday and 16.0 bcfd on Tuesday, largely owing to a decline in gas flows to Cheniere Energy’s 3.9 bcfd Corpus Christi plant in Texas.
Separately, Cheniere told Texas environmental regulators that Bechtel, the company building new liquefaction trains at the Corpus LNG plant, began startucommissioning operations of Corpus Midscale Train 3 on August 11.
(Reporting by Scott DiSavino in New York)