U.S. natural gas futures slid about 2% to a fresh three-year low on Thursday on rising near-record output and forecasts for less heating demand next week than previously expected.

With gas prices now down about 23% since the start of 2024 after collapsing 44% last year, some analysts say gas producers – especially the small producers – will have to cut the number of wells they drill to reduce output.

The gas rig count fell by 23% in 2023, leaving just 120 rigs in service, and was down by another 3 rigs so far this year, according to energy service company Baker Hughes BKR.O. RIG/U

Market watchers, however, expect gas prices to rise in coming days with much colder weather expected to blanket much of the country in mid- to late-February.

But that cold may not last long enough or be intense enough for prices to rise too high. Meteorologists forecast the weather will turn colder than normal from Feb. 17-20 with temperatures on the coldest day averaging about 39 degrees Fahrenheit (4 Celsius) on Sunday, Feb. 18, according to data from financial company LSEG.

That compares with a normal average of 41 F in the U.S. Lower 48 states on that day.

Thursday’s price drop also came as the amount of gas flowing to liquefied natural gas (LNG) export plants remained low due to an ongoing outage at Freeport LNG’s plant in Texas, and ahead of a federal report expected to show a much smaller-than-usual storage withdrawal last week when warmer than normal weather depressed heating demand.

Analysts forecast U.S. utilities pulled just 76 billion cubic feet (bcf) of gas out of storage during the week ended Feb. 2. That compares with a decrease of 208 bcfd in the same week last year and a five-year (2019-2023) average decline of 193 bcf for this time of year.

Front-month gas futures NGc1 for March delivery on the New York Mercantile Exchange (NYMEX) fell 3.3 cents, or 1.7%, to $1.934 per million British thermal units (mmBtu) at 9:50 a.m. EST (1450 GMT), putting the contract on track for its lowest close since September 2020 for a second day in a row.

Rising price volatility in recent weeks, meanwhile, has increased interest in gas trading with open interest in NYMEX futures rising to 1.533 million contracts on Feb. 6, the most since February 2020, for a sixth day in a row.

SUPPLY AND DEMAND

LSEG said gas output in the U.S. Lower 48 states rose to an average of 105.6 billion cubic feet per day (bcfd) so far in February from 102.1 bcfd in January. That, however, was still below the monthly record high of 106.3 bcfd in December.

Meteorologists projected temperatures in the Lower 48 states would remain warmer than normal through Feb. 15 before sliding to mostly near- to below-normal levels from Feb. 16-23.

With seasonally colder weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 122.7 bcfd this week to 124.5 bcfd next week. The forecast for next week was lower than LSEG’s outlook on Wednesday.

Gas flows to the seven big U.S. LNG export plants slid to an average of 13.3 bcfd so far in February, down from 13.9 bcfd in January and a monthly record high of 14.7 bcfd in December.

Analysts said U.S. LNG feedgas would likely not return to record levels until Freeport LNG was back at full power, which could occur in mid- to late-February.
Source: Reuters (Reporting by Scott DiSavino)