U.S. natgas slips on mild U.S. weather, lower global prices

Over the past few weeks, worries that Europe would not have enough gas in storage for the winter heating season and high demand for the fuel in Asia boosted global prices to record peaks. U.S. prices followed those global prices – reaching their highest since 2008 this week – on expectations competition between Europe and Asia would keep demand for U.S. liquefied natural gas (LNG) exports strong.

But global prices fell late this week after Russia said it would supply more gas to Europe. U.S. prices fell on a growing belief in the market that the United States will have more than enough gas for the winter after four weeks of bigger-than-usual storage builds and a lack of capacity to produce more LNG for export.

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

Looking ahead, analysts expect U.S. inventories will top 3.5 trillion cubic feet (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 still expected to boost prices to multi-year highs in California and New England this winter. read more

Front-month gas futures fell 11.2 cents, or 2.0%, to settle at $5.565 per million British thermal units (mmBtu), their lowest close since Sept. 29.

After an extremely volatile week of trade, the contract slipped about 0.5% this week after rising almost 40% during the prior six weeks. 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 U.S. 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. read more

Data provider Refinitiv said gas output in the U.S. 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 U.S. 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 U.S. 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 (LNG.A) Sabine Pass and Venture Global LNG’s Calcasieu Pass in Louisiana are expected to start producing LNG in test mode.