U.S. natural gas futures fell about 8% to their lowest in a year on Tuesday on rising output and forecasts for lower heating demand than previously expected for this week.
“U.S. natural gas demand could be on track to hit record lows in January if unseasonably warm weather sticks around,” Emily McClain, vice president at consulting firm Rystad Energy, said in a note.
“Despite consistently robust LNG (liquefied natural gas) demand … particularly from European buyers, prices are falling and expected to continue bearish momentum until winter weather returns,” McClain said, noting gas production has rebounded after a winter storm caused a sudden drop in late December.
Front-month gas futures for February delivery fell 32.3 cents, or 8.3%, to $3.587 per million British thermal units (mmBtu) at 10:12 a.m. EST (1512 GMT), putting the contract on track for its lowest close since Dec. 30, 2021.
The price decline also pushed the front month back into technically oversold territory, with a relative strength index (RSI) below 30 for the eighth time in nine days.
The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks. It calls the spread the “widow maker” because rapid price moves resulting from changing weather forecasts have forced some speculators betting on the spread to go out of business, including the Amaranth hedge fund, which lost more than $6 billion on gas futures in 2006.
Traders said the biggest market uncertainty remains the restart date for Freeport LNG’s export plant in Texas.
Whenever Freeport returns, U.S. gas demand will jump. The plant can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG, which is about 2% of U.S. daily production.
The Elisa Larus LNG vessel that had been waiting to pick up fuel from Freeport has since moved on to Cheniere Energy Inc’s
LNG Corpus Christi export plant in Texas.
But several other vessels, including Prism Diversity, Prism Courage and Prism Agility, continue to wait in the Gulf of Mexico to pick up LNG from Freeport. Some have been waiting since early November.
Other ships, meanwhile, are sailing towards Freeport, including Corcovado LNG, which is expected to arrive in mid-January. Prism Brilliance, Kmarin Diamond and Wilforce are expected in late January.
U.S. GAS OUTPUT RISING
Data provider Refinitiv said that average gas output in the U.S. Lower 48 states has risen to 98.3 bcfd so far in January, up from 96.7 bcfd in December. That compares with a monthly record of 99.9 bcfd in November 2022.
With the weather expected to remain warmer than normal until late January, Refinitiv projected average U.S. gas demand, including exports, would hold at 120.8 bcfd this week and next. The forecast for this week was lower than Refinitiv’s outlook on Monday.
Source: Reuters