NEW YORK: US natural gas futures fell about 4% on Monday on record output and forecasts for milder weather and less heating demand next week than previously expected.
Front-month gas futures for June delivery on the New York Mercantile Exchange fell 9.2 cents, or 3.8%, to settle at $2.318 per million British thermal units (mmBtu). On Friday, the contract rose about 2% to its highest close since March 16.
Looking ahead, the premium of the November 2023 contract over October 2023 rose to a record 46 cents.
The industry uses the October-November spread to bet on winter weather forecasts since October is the last month of the summer cooling season when utilities inject gas into storage.
Data provider Refinitiv said average gas output in the US Lower 48 states rose to a record 101.3 bcfd in April, up from the prior all-time high of 100.5 bcfd in March.
Meteorologists projected the weather in the Lower 48 states would turns from colder-than-normal from May 1-5 to near- to warmer-than-normal from May 6-16.
With the weather turning seasonally warmer, Refinitiv forecast US gas demand, including exports, would slide from 95.6 bcfd this week to 91.0 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Friday.
Gas flows to the seven big US LNG export plants rose to a record 14.0 billion cubic feet per day (bcfd) in April, up from the previous all-time high of 13.2 bcfd in March, according to Refinitiv.
That is higher than the 13.8 bcfd of gas the seven plants can turn into LNG since the facilities use some of the fuel to power equipment used to produce LNG.
Some analysts have begun to question whether the recent collapse of gas prices in Europe and Asia could force US 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 cancelled due to oversupply and 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 US LNG exports in 2023.
Gas was trading at a 21-month low of around $12 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and at a 22-month low of $12 at the Japan Korea Marker (JKM) in Asia.
Even though TTF gas prices were down about 49% and JKM down about 61% so far this year, those prices were still high enough to feed demand for US LNG exports.
US gas futures, which were down about 48% so far this year, lag far behind global prices because the United States is the world’s top producer with all the fuel it needs for domestic use, while capacity constraints prevent the country from exporting more LNG.
Gas stockpiles in northwest Europe - Belgium, France, Germany and the Netherlands were currently at about 60% of capacity, keeping the amount of gas in storage about 58% above its five-year (2018-2022) average for the time of year, according to Refinitiv.
That is much more gas in storage than in US inventories, which are currently about 22% above their five-year norm again due to mostly mild weather last winter.
To ensure Europe has enough gas for the winter heating season, the European Union wants utilities to refill stockpiles to 90% of capacity by Nov. 1.