U.S. natural gas futures eased about 1% to a one-week low on Friday on forecasts for record output, rising exports from Canada after wildfires and forecasts for mild weather that should keep demand low and allow utilities to inject more gas into storage than usual for this time of year.

Front-month gas futures NGc1 for June delivery on the New York Mercantile Exchange fell 2.4 cents, or 1.1%, to $2.166 per million British thermal units (mmBtu) at 9:08 a.m. EDT (1308 GMT), putting the contract on track for its lowest close since May 5.

For the week, the contract was up about 1% after falling about 11% last week.

A lack of rapid price moves in recent weeks – futures have not settled up or down more than 5% so far in May – cut the contract’s 30-day implied volatility index NGATMIV to 58.7%, its lowest since April 2022. The market uses implied volatility to estimate likely price changes in the future.

At-the-money 30-day implied volatility NGATMIV, a determinant of an option’s premium, averaged 82.5% so far in 2023, up from 80.6% in 2022 and a five-year (2018-2022) average of 53.2%.

In the spot market, the lack of demand due to mild weather caused next-day gas prices for Friday at the PG&E Citygate NG-CG-PGE-SNL in Northern California to drop to its lowest since June 2021.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states held at 101.4 billion cubic feet per day (bcfd) so far in May, matching the monthly record hit in April.

The amount of gas flowing from Canada to the U.S. was on track to hold at 7.6 bcfd for a third day in a row on Friday, up from a 25-month low of 6.7 bcfd on Sunday as wildfires in Alberta caused some producers to shut oil and gas output and pipeline flows.

Since the start of the year, Canada has exported an average of 8.5 bcfd of gas to the United States.

Meteorologists projected the weather in the U.S. Lower 48 states would switch from warmer-than-normal levels from May 12-17 to near-normal from May 18-27.

Refinitiv forecast U.S. gas demand, including exports, would rise from 91.2 bcfd this week to 91.9 bcfd next week as some homes and businesses turn on their air conditioners before sliding to 90.1 bcfd in two weeks when the weather turns milder.

Gas flows to the seven big U.S. LNG export plants fell to an average of 13.1 bcfd so far in May, down from a record 14.0 bcfd in April. The decline was due mostly to reductions at Cameron LNG’s terminal in Louisiana and Cheniere Energy Inc’s LNG.A Sabine Pass in Louisiana.

Last month’s record flows were higher than the 13.8 bcfd of gas the seven plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG.

GLOBAL GAS PRICE COLLAPSE

Some analysts have questioned whether this year’s gas price collapse in Europe and Asia could force U.S. exporters to cancel LNG cargoes this summer after mostly mild weather over the winter left massive amounts of gas in storage. In 2020, at least 175 LNG shipments were canceled due to weak demand.

But for now, most analysts say energy security concerns following Russia’s invasion of Ukraine in February 2022 should keep global gas prices high enough to sustain record U.S. LNG exports in 2023.

Gas was trading at 22-month lows of around $11 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and the Japan Korea Marker (JKM) in Asia. That puts TTF down about 54% and JKM was down about 62% so far this year.
Source: Reuters (Reporting by Scott DiSavino; editing by Jonathan Oatis)