U.S. natural gas futures edged up about 1% on Wednesday on forecasts for more demand this week than previously expected with an expected increase in flows to liquefied natural gas (LNG) export plants as Cameron LNG’s plant in Louisiana shows signs of exiting a maintenance reduction.
Gas futures for July delivery on the New York Mercantile Exchange fell 3.5 cents, or 1.0%, to $3.568 per million British thermal units. On Tuesday, the contract closed at its lowest since May 30 for a second day in a row.
Prices edged up even as energy firms continue to add record amounts of gas into storage and as the cost of spot gas remains well below futures prices.
So far this year, energy firms have pulled a monthly record high of 1.013 billion cubic feet (bcf) of gas out of storage during a brutally cold January and added a monthly record high of 497 bcf into storage in May when mild weather kept both heating and cooling demand low, according to federal energy data. The prior all-time monthly injection high was 494 bcf in May 2015.
Analysts expect energy firms will keep setting storage records in coming weeks with a record-tying, seventh triple-digit injection forecast for the week ended June 6. The U.S. Energy Information Administration will release the storage report for the week ended June 6 on Thursday.
The last time energy firms added 100 bcf or more of gas into storage for seven weeks in a row was in June 2014, according to federal energy data going back to 2010.
Next-day gas prices at the U.S. Henry Hub benchmark in Louisiana were trading around $2.79 per mmBtu, keeping spot contracts below front-month futures every day since late April.
Analysts have said that so long as spot prices remain far enough below front-month futures to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states eased to 105.0 billion cubic feet per day so far in June, down from 105.2 bcfd in May and a monthly record high of 106.3 bcfd in March due primarily to normal spring maintenance.
Meteorologists project weather across the Lower 48 states will remain mostly warmer than normal through June 26.
LSEG forecast average gas demand in the Lower 48, including exports, would rise from 98.6 bcfd this week to 100.0 bcfd next week. The forecast for this week was higher than LSEG’s outlook on Tuesday, while the forecast for next week was lower.
The average amount of gas flowing to the eight big U.S. LNG export plants fell to 13.8 bcfd so far in June, down from 15.0 bcfd in May and a monthly record high of 16.0 bcfd in April.
Traders said LNG feedgas reductions since April were primarily due to spring maintenance, including work at Cameron LNG’s 2.0-bcfd plant in Louisiana and Cheniere Energy’s 4.5-bcfd Sabine Pass facility in Louisiana and 3.9-bcfd Corpus Christi plant in Texas, and short, unplanned unit outages at Freeport LNG’s 2.1-bcfd plant in Texas on May 6, May 23, May 28 and June 3.
Energy traders have noted that LNG maintenance would likely continue through mid-June at Cameron and late-June at Sabine. Gas flows to Cameron were on track to edge up to a four-week high of 1.5 bcfd on Wednesday, up from an average of 1.4 bcfd over the past month, according to LSEG data.
Source: Reuters