U.S. natural gas futures eased about 1% to a two-week low on Wednesday on record output and forecasts for mild weather through late November, keeping heating demand low and allowing utilities to continue injecting gas into storage for a couple more weeks.
Front-month gas futures NGc1 for December delivery on the New York Mercantile Exchange was down 3.5 cents, or 1.1%, to $3.105 per million British thermal units (mmBtu) at 9:29 a.m. EST (1429 GMT), putting the contract on track for its lowest close since Oct. 25 for a second day in a row.
A bearish factor that has weighed on the futures market for much of this year has been lower spot or next-day prices at the Henry Hub benchmark NG-W-HH-SNL in Louisiana. The spot market has traded below front-month futures for 178 out of 214 trading days so far this year, according to data from financial firm LSEG.
Next-day prices at the Henry Hub dropped about 33% to $2.00 per mmBtu for Wednesday.
Analysts have said that so long as the futures market stays in contango – with the second-month higher than the front-month – and spot prices remain far enough below the front-month 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.
Looking ahead, the U.S. Energy Information Administration (EIA) said it would not release its weekly gas storage report on Thursday due to a planned systems upgrade. EIA will resume its regular schedule next week.
In Texas, voters approved a constitutional amendment on Tuesday to fund the construction of power plants. The plan is one of several efforts by the state to avoid another energy crisis like the one caused by a deadly winter storm in February 2021 that left millions without power, water and heat for days due to the shutdown of an unusually large amount of generation.
In Maine, meanwhile, voters rejected a proposal to create a public power company, called Pine Tree Power, to take over the operations of Avangrid’s Central Maine Power and Enmax’s Versant Power.
SUPPLY AND DEMAND
LSEG said average gas output in the Lower 48 U.S. states has risen to 107.0 billion cubic feet per day (bcfd) so far in November, up from a record 104.2 bcfd in October.
Meteorologists projected the weather would remain mostly warmer than normal through Nov. 23.
But with the weather turning seasonally cooler with the coming of winter, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would jump from 100.6 bcfd this week to 108.8 bcfd next week. Those forecasts were higher than LSEG’s outlook on Tuesday.
Pipeline exports to Mexico have fallen to an average of 5.4 bcfd so far in November, down from 6.5 bcfd in October and a record 7.0 bcfd in August. On a daily basis, exports to Mexico were on track to fall to an eight-month low of 4.5 bcfd on Wednesday.
Analysts expect U.S. exports to Mexico to rise once U.S.-based New Fortress Energy’s NFE.O plant in Altamira starts pulling in U.S. gas to turn into LNG for export by the end of the year.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 13.8 bcfd so far in November, up from 13.7 bcfd in October and a record 14.0 bcfd in April.
Source: Reuters (Reporting by Scott DiSavino; Editing by Paul Simao)