US natural gas futures on Friday fell to a fresh three-year low on forecasts for less demand through mid-August than previously expected, despite a pipeline explosion that reduced some output from the Marcellus and Utica shale. Even though power demand and liquefied natural gas (LNG) exports are at record highs, analysts said futures have traded around multi-year lows since late May because near record production and mild spring weather allowed utilities to inject huge amounts of gas into storage, shrinking a massive inventory deficit and removing concern about shortages in the winter.
The amount of gas in inventory has remained below the five-year average since September 2017. It fell as low as 33% below that average in March 2019. But with production expected to keep growing, analysts said stockpiles should reach a near-normal 3.7 trillion cubic feet (tcf) by the end of the summer injection season on October 31.
Front-month gas futures for September delivery on the New York Mercantile Exchange were down 8.2 cents, or 3.7%, to $2.120 per million British thermal units at 8:45 am EDT (1245 GMT). Earlier Friday morning, the contract was down over 5% to its lowest since May 26, 2016.
For the week, the contract was trading down about 2%, putting it on track to decline for a third week in a row. During those three weeks, the front-month has lost about 13%.
Data firm Refinitiv projected demand in the Lower 48 US states would rise to 90.9 billion cubic feet per day (bcfd) as power generators burn more fuel to meet higher air conditioning use and more gas flows to the nation's LNG export terminals from 90.2 bcfd this week before sliding to 89.9 bcfd in two weeks as the weather cools a bit.
The power sector burned a record 40.5 bcfd of gas on average in July in the Lower 48 states alone, according to Refinitiv data. That easily topped the prior monthly record for the entire country of 39.9 bcfd in July 2018, according to federal data. The amount of gas flowing to LNG export terminals held around 6.0 bcfd for a third day in a row on Thursday, up from a low of 5.7 bcfd last week, according to Refinitiv data. That compares with a daily record high of 6.4 bcfd on July 19.
Analysts expect LNG exports to rise to new record highs soon as new units enter service at Sempra Energy's Cameron in Louisiana, Freeport LNG's Freeport in Texas and Kinder Morgan Inc's Elba in Georgia.
Gas production in the Lower 48 states, meanwhile, slipped from a three-week high of 90.7 bcfd on Wednesday to 90.3 bcfd on Thursday after an explosion on Enbridge Inc's Texas Eastern pipe in Kentucky caused some Marcellus and Utica shale producers to shut-in some wells, according to traders and data from Refinitiv. That compares with an all-time daily high of 91.0 bcfd on July 5 and an average of 83.1 bcfd during this week last year.
Output in the Appalachia region of Pennsylvania, Ohio and West Virginia slipped to 31.8 bcfd on Thursday from 32.2 bcfd on Wednesday, according to Refinitiv.
Enbridge, which shut the section of Texas Eastern around the blast, told customers it did not know when the pipe would return to service. At the time of the explosion, which killed one person in Kentucky, about 1.7 bcfd of gas was flowing south on the pipe from the Marcellus and Utica toward the Gulf Coast.
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