U.S. natural gas futures dropped about 4% on Friday on forecasts for less demand over the next two weeks than previously expected, while mild weather so far this year cut historical volatility in futures to a 13-month low.
A big part of what has kept U.S. demand depressed in recent weeks is a drop in the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants due to maintenance work at several facilities and the pipelines connected to them.
Friday’s price decline came despite a decrease in U.S. gas output, a jump in global gas prices, near record exports to Mexico and as U.S. generators burn more gas to produce electricity due to a reduction in wind and solar power output related in part to smoke from wildfires in Canada.
The amount of U.S. power generated by solar slid to just 4% of the total so far this week versus an average of 5% over the past month, according to federal energy data. Wind power also dropped to 5% of total generation this week versus a recent high of 12% during the windy week ended May 12.
That forced power generators to boost the amount of electricity produced by gas to 45% this week, up from around 40% in recent weeks.
Front-month gas futures NGc1 for July delivery on the New York Mercantile Exchange fell 9.8 cents, or 4.2%, to settle at $2.254 per million British thermal units (mmBtu). On Thursday, the contract rose for a fifth day in a row to settle at its highest since May 24.
After prices rose during the prior five trading days, the front-month was still up about 4% for the week after easing less than 1% last week.
Mild weather so far this year has cut historic or actual 30-day close-to-close volatility to 62.2%, its lowest since May 2022.
On a daily basis, historic volatility hit a record high of 177.7% in February 2022 and a record low of 7.3% in June 1991.
So far this year, historic volatility has averaged 89.4%. That compares with an annual record high of 92.8% in 2022 and a five-year (2018-2022) average of 57.9%.
Around the world, however, gas futures remained volatile. Prices at the Dutch Title Transfer Facility (TTF) benchmark in Europe jumped as much as 24% earlier in the session to around $10 per mmBtu on Friday after dropping about 13% on June 6 and soaring 25% on June 5. NG/EU
So far this year, gas prices at TTF and the Japan Korea Marker (JKM) JKMc1 benchmark in Asia have collapsed by more than 55%. TTF fell to a 25-month low near $7 per mmBtu last week, while JKM matched a 24-month low of around $9 on Friday.
SUPPLY AND DEMAND
Data provider Refinitiv said average gas output in the U.S. Lower 48 states eased to 102.1 billion cubic feet per day (bcfd) so far in June, down from a monthly record of 102.5 bcfd in May.
With the weather expected to remain mild next week, Refinitiv forecast U.S. gas demand, including exports, would slide from 95.6 bcfd this week to 94.4 bcfd next week before jumping to 98.6 bcfd in two weeks when rising temperatures cause homes and businesses to crank up air conditioners.
U.S. exports to Mexico rose to an average of 6.7 bcfd so far in June, up from 6.2 bcfd in May. That compares with a monthly record high of 6.7 bcfd in June 2021.
Gas flows to the seven big U.S. LNG export plants fell to an average of 11.9 bcfd so far in June, down from 13.0 bcfd in May. That is well below the monthly record of 14.0 bcfd in April due to maintenance at several facilities, including Cheniere Energy Inc’s LNG.A Sabine Pass in Louisiana.
Source: Reuters (Reporting by Scott DiSavino; Editing by Chris Reese and Chizu Nomiyama)