U.S. natural gas futures fell about 6% to a three-week low on Friday as global gas prices collapsed, a U.S. contract expired and on record U.S. output, rising Canadian exports and forecasts for milder U.S. weather and lower demand next week including the U.S. Memorial Day holiday on Monday. Prices declined despite a lack of wind power in recent weeks that forced power generators to burn more gas to produce electricity, reducing the gas put in storage. The amount of U.S. power generated by wind dropped to 7% of the total so far this week versus a high of 17% during the week ended April 21, according to federal energy data.
The amount of power generated by gas averaged 41% so far this week, up from a low of 37% during the windy week ended April 21. On its last day as the front month, gas futures for June delivery on the New York Mercantile Exchange fell 12.6 cents, or 5.5%, to settle at $2.181 per million British thermal units (mmBtu), their lowest close since May 5.
“Final settlement day bolsters volatility risks as liquidity thins for the expiring front-month contract, with eight of the last ten expiration days posting a price move of 10 (cents) or more. Contract settlement into Memorial Day weekend further enhance short-term risks,” analysts at energy advisory EBB Analytics said in a note. Only about 2,173 front-month contracts traded on Friday versus a daily average of over 130,000 since the start of the year. Futures for July, which will soon be the front month, were down about 6 cents to $2.417 per mmBtu. For the week, the front-month was down about 16%, which would erase last week’s 14% gain. In the spot market, mild weather and ample hydropower in the U.S. West pressured next-day gas prices for Friday at the PG&E Citygate in Northern California to $2.80 per mmBtu, their lowest since August 2020 for a second day in a row.
SUPPLY AND DEMAND
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 101.5 billion cubic feet per day (bcfd) so far in May, which would top April’s monthly record of 101.4 bcfd. As firefighters make significant progress in tackling wildfires in Alberta, the amount of gas exported from Canada to the U.S. was on track to hold around 8.0 bcfd for a fourth day in a row on Friday, according to Refinitiv, up from an average of 7.0 bcfd from May 6-22 when some fires were still raging out of control.
Meteorologists projected the weather in the Lower 48 states would switch from cooler than normal from May 26-29 to mostly near normal from May 30-June 10. Refinitiv forecast U.S. gas demand, including exports, would ease from 90.8 bcfd this week to 89.7 bcfd next week with the coming of milder weather and the Memorial Day holiday on Monday before rising to 93.8 bcfd in two weeks as the weather turns seasonally warmer. GLOBAL GAS PRICE COLLAPSE Some analysts have questioned whether this year’s gas price collapse in Europe and Asia could force U.S. exporters to cancel LNG cargoes this summer after mostly mild weather over the winter left massive amounts of gas in storage. In 2020, at least 175 LNG shipments were canceled due to weak demand. But for now, most analysts say energy security concerns following Russia’s invasion of Ukraine in February 2022 should keep global gas prices high enough to sustain record U.S. LNG exports in 2023. Gas was trading at a 25-month low of around $8 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and a 24-month low of $9 at the Japan Korea Marker (JKM) in Asia. That put TTF down about 67% and JKM down about 68% so far this year.
Source: Reuters (Reporting by Scott DiSavino; Editing by Andrea Ricci and David Gregorio)