US natural gas futures dropped almost 4% on Thursday to their lowest in almost two weeks as global prices slid from record highs and on expectations a federal report will show last week's US storage build was bigger than usual for a fourth week.
Big storage injections and rising US output in recent weeks have convinced many in the market that the United States will have more than enough gas in inventory for the upcoming winter heating season.
The situation around the rest of the world, however, is very different. Since the middle of August, global gas prices have repeatedly hit record highs as worries Europe may not have enough gas in storage for the winter and insatiable demand for the fuel in Asia have boosted demand for available liquefied natural gas (LNG) exports.
But some of the world's biggest LNG importers are reducing orders in the face of the 500% gas price surge in Europe seen so far this year, raising concerns about potential long-term demand destruction for the fuel.
Analysts forecast US utilities added 105 billion cubic feet (bcf) of gas into storage during the week ended Oct. 1. That compares with an increase of 75 bcf in the same week last year and a five-year (2016-2020) average increase of 81 bcf.
If correct, last week's injection would boost stockpiles to 3.275 trillion cubic feet (tcf), which would be 5.5% below the five-year average of 3.464 tcf for this time of year.
Looking ahead, analysts expect US inventories will reach about 3.5 tcf by the start of the winter heating season in November, which they said would be a comfortable level although it falls short of the 3.7 tcf five-year average for that time of year. That is nowhere near as dire as in Europe where analysts say gas storage is over 20% below normal in some countries.
After rising to a 12-year high on Tuesday and then dropping 10% on Wednesday, front-month gas futures fell 21.2 cents, or 3.7%, to $5.463 per million British thermal units (mmBtu) at 8:04 a.m. EDT (1204 GMT), putting the contract on track for its lowest close since Sept. 24.
Weeks of rapid changes in US gas futures boosted implied volatility to an all-time high on Tuesday. 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 91.9 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.
With gas prices near $34 per mmBtu in Europe and 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.
Data provider Refinitiv said the amount of gas flowing to US LNG export plants slipped from an average of 10.4 bcfd in September to 9.9 bcfd so far in October with short-term upsets at a few Gulf Coast plants and ongoing planned maintenance at Berkshire Hathaway Energy's Cove Point LNG export plant in Maryland.
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.