US natural gas flat as mild US weather offsets strong global LNG demand

US natural gas futures held steady for a second day in a row on Friday as forecasts for mild weather and low heating demand through late October offset expectations that insatiable global demand for the fuel would keep US liquefied natural gas (LNG) strong.

Traders also noted that a growing belief that the United States will have enough gas in storage for the winter after four weeks of bigger-than-usual storage builds and a lack of capacity to produce more LNG for export has kept US prices from rocketing to the sky-high levels seen in Europe and Asia.

Moreover, with US gas production rising and heating demand expected to remain low for the rest of the month, traders noted US utilities should be able to keep putting more gas into storage than usual for weeks to come.

Looking ahead, analysts expect US inventories will top 3.5 tcf by the start of the winter heating season in November, which they said would be a comfortable level even though it falls short of the 3.7 tcf five-year average. That is nowhere near as dire as in Europe where analysts say gas storage is over 20% below normal in some countries.

But pipeline constraints and competition for expensive LNG were expected to boost prices to multi-year highs in California and New England this winter.

Front-month gas futures fell 1.1 cents, or 0.2%, to $5.666 per million British thermal units (mmBtu) at 8:33 a.m. EDT (1233 GMT).

US natural gas falls over 3% from 7-year high on ample winter storage

In an extremely volatile week of trade, the contract was only on track to rise less than 1%, which would put it up for a seventh week in a row for the first time since December 2013. Earlier this week, the front-month soared over 9% to a 12-year high on Tuesday and collapsed over 10% on Wednesday.

Weeks of rapid changes in US gas futures boosted implied volatility to an all-time high earlier this week. The market uses implied volatility to estimate likely price changes in the future.

Data provider Refinitiv said gas output in the US Lower 48 states rose to an average of 92.0 billion cubic feet per day (bcfd) so far in October from 91.1 bcfd in September. That compares with a monthly record of 95.4 bcfd in November 2019.

Refinitiv projected average US gas demand, including exports, would slide from 86.1 bcfd this week to 84.8 bcfd next as the weather turns milder before edging up to 85.1 bcfd in two weeks as more homes and businesses start to turn on their heaters. Those forecasts were similar to what Refinitiv expected on Thursday.

With gas prices near $32 per mmBtu in Europe and $33 in Asia, versus under $6 in the United States, traders said buyers around the world should keep purchasing all the LNG the United States could produce.

Refinitiv said the amount of gas flowing to US LNG export plants slipped from an average of 10.4 bcfd in September to 10.0 bcfd so far in October due to short-term upsets at some Gulf Coast plants and ongoing planned maintenance at Berkshire Hathaway Energy's Cove Point LNG export plant in Maryland.

Traders noted the work on Cove Point was expected to last about three weeks, meaning it could return to service early next week.

But no matter how high global prices rise, the United States only has capacity to turn about 10.5 bcfd of gas into LNG. Global markets will have to wait until later this year to get more from the United States when the sixth liquefaction train at Cheniere Energy Inc's Sabine Pass and Venture Global LNG's Calcasieu Pass in Louisiana are expected to start producing LNG in test mode.