NEW YORK: US natural gas futures dropped about 5% on Friday from a two-year high in the prior session on forecasts for milder weather in late January and early February that should cut demand for gas for heating.
This weekend, however, extreme cold weather over the Martin Luther King Jr. and Inauguration Day holidays was on track to cut output by freezing gas wells and pipes and boost usage of the fuel to heat homes and businesses to record highs.
Front-month gas futures for February delivery on the New York Mercantile Exchange fell 22.7 cents, or 5.3%, to $4.031 per million British thermal units at 8:45 a.m. EST (1345 GMT). On Thursday, the contract closed at its highest since Dec. 30, 2022.
For the week, the front-month was up less than 1% after soaring about 19% last week.
After utilities pulled a massive 258 billion cubic feet (bcf) of gas out of storage during the week ended Jan. 10, analysts projected energy firms would keep pulling over 200 bcf of gas during the weeks ending Jan. 17 and Jan. 24 to meet soaring heating demand. Some analysts said withdrawals this month could top the current record high of 994 bcf set in January 2022, according to federal energy data.
There was currently about 3% more gas in storage than usual for the time of year. Storage withdrawals this month could remove that surplus by the end of January, which would be the first time stockpiles would fall below the five-year average since January 2022.
Financial firm LSEG said average gas output in the Lower 48 US states fell from 104.2 billion cubic feet per day (bcfd) in December to 103.4 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.
While curtailments were small so far this month, analysts and traders warned that freeze-offs could soar in coming days, with the coldest weather still to come.
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 Jan. 26, with the coldest days expected around Jan. 20-21, before turning mostly near normal from Jan. 27-Feb. 1. The weather on Jan. 20-21 at the end of the long holiday weekend was on track to be the coldest since the Martin Luther King Jr. holiday weekend in 2024 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 that Jan. 20-21 could be even more frigid this year, possibly the coldest in a decade or more.
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