U.S. natural gas futures fell about 4% to a one-week low on Tuesday even as extreme cold across much of the country boosted spot gas and power prices to multi-year highs in several regions and with gas heating demand expected to reach a record high.
Futures prices declined because freezing weather over the long U.S. Martin Luther King Jr. holiday weekend did not do much to reduce gas output and the latest weather forecasts continued to call for less cold and lower heating demand next week.
Front-month gas futures for February delivery on the New York Mercantile Exchange fell 14.3 cents, or 3.6%, to $3.805 per million British thermal units (mmBtu) at 9:18 a.m. EST (1418 GMT), putting the contract on track for its lowest close since Jan. 9.
Even though gas futures eased about 1% last week, speculators boosted their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges for a sixth week in a row to the highest level since September 2021, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
Analysts projected energy firms would pull over 200 billion cubic feet (bcf) of gas out of storage for a second and third week in a row during the weeks ending Jan. 17 and Jan. 24 to meet soaring heating demand, erasing the small surplus of gas in inventory over the five-year average for the first time since January 2022.
Some analysts said storage withdrawals in January could top the current monthly record high of 994 bcf set in January 2022, according to federal energy data.
In the spot market gas, prices rose to their highest since January 2024 at several hubs across the country including the U.S. Henry Hub (NG-W-HH-SNL) benchmark in Louisiana, Waha (NG-WAH-WTX-SNL) in West Texas, Eastern Gas South (NG-PCN-APP-SNL) in Pennsylvania, the Southern California Border (NG-SCL-CGT-SNL), PG&E (NG-CG-PGE-SNL) in Northern California and Chicago (NG-CG-CH-SNL).
In the Northeast, meanwhile, gas prices soared to $43 per mmBtu in New York, their highest since hitting an all-time high in Jan. 2018, and climbed to $24 at the Algonquin hub (NG-CG-BS-SNL) in New England, their highest since February 2023.
Those jumps in spot gas boosted next-day power prices to a record high of $275 per megawatt hour (MWh) at the PJM West Hub in western Pennsylvania and a 30-month high of $268 in New England.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states fell from 104.2 billion cubic feet per day (bcfd) in December to 103.0 bcfd so far in January, due mostly to freezing oil and gas wells and pipes, known as freeze-offs. That compares with a monthly record of 104.5 bcfd in December 2023.
On a daily basis, freeze-offs helped cause output to slide by around 3.3 bcfd over the past six days to a preliminary three-month low of 100.4 bcfd on Tuesday.
While curtailments were small so far this winter, analysts and traders warned that freeze-offs could rise with more cold still to come this week.
Freeze-offs in past winters cut gas output by roughly 8.1 bcfd from Jan. 9-16 in 2024, 4.6 bcfd from Jan. 31-Feb. 1 in 2023, 15.8 bcfd from Dec. 20-24 in 2022, and 20.4 bcfd from Feb. 8-17 in 2021, according to LSEG data.
Meteorologists projected that weather in the Lower 48 states would remain mostly colder than normal through Feb. 5, except for some near normal days around Jan. 30-Feb. 2.
Jan. 20 was the coldest day since last year’s Martin Luther King Jr. holiday weekend when gas demand hit a daily record high and spot prices jumped to multi-year highs at several trading hubs across the country. Some forecasters projected Jan. 21 would be even colder, possibly the coldest since a brutal freeze in Dec. 2022.
But with less cold weather coming next week, LSEG forecast average gas demand in the Lower 48 states, including exports, would fall from 153.3 bcfd this week to 142.3 bcfd next week. The forecast for next week was higher than LSEG’s outlook on Friday.
On a daily basis, LSEG said total gas use so far this winter peaked at 168.2 bcfd on Jan. 20 and could reach 172.2 bcfd on Jan. 21. If correct, demand on Jan. 21 would top the current daily record high of 168.4 bcfd on Jan. 16, 2024.
Adding to total gas demand, the amount of gas flowing to the eight big U.S. LNG export plants rose to an average of 15.2 bcfd so far in January, up from 14.4 bcfd in December. That compares with a monthly record high of 14.7 bcfd in December 2023.
Source: Reuters