February 9, 2022U.S. natural gas futures fell about 4% to a two-week low on Wednesday as output slowly increases after weeks of reductions from freezing wells and on forecasts for slightly less cold weather and lower heating demand than expected in the next two weeks.
After weeks of near record volatility, front-month gas futures for March delivery fell 16.6 cents, or 3.9%, to $4.082 per million British thermal units (mmBtu) at 8:13 a.m. EST (1313 GMT), putting the contract on track for its lowest close since Jan. 25.
In the spot market, frigid weather and high heating demand in the U.S. Northeast since the start of 2022 have kept next-day power and gas prices in New York and New England at or near their highest levels since January 2018.
Those high prices have made it economic for the region’s power generators to burn lots of expensive oil and liquefied natural gas (LNG) this winter.
Data provider Refinitiv said output in the U.S. Lower 48 states fell from a record 97.3 billion cubic feet per day (bcfd) in December to 93.9 bcfd in January and 90.8 bcfd in February after wells in several producing regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota and the Appalachia in Pennsylvania, West Virginia and Ohio.
On a daily basis, however, output has been rising almost daily since it dropped to 86.3 bcfd during a winter storm on Feb. 4, its lowest since February 2021.
With the weather turning seasonally less cold, Refinitiv projected average U.S. gas demand, including exports, would drop from 130.0 bcfd this week to 122.6 bcfd next week. The forecast for this week was lower than Refinitiv’s outlook on Tuesday.
The amount of gas flowing to U.S. LNG export plants rose to an average of 12.5 bcfd so far in February, which would top the monthly record of 12.4 bcfd in January, as liquefaction trains at Venture Global LNG’s Calcasieu Pass plant in Louisiana enter service. A vessel arrived near Calcasieu on Monday and could pick up the plant’s first LNG cargo this week.
Traders said demand for U.S. LNG would remain strong so long as global gas prices keep trading well above U.S. futures as utilities around the world scramble for cargoes to meet surging demand in Asia and replenish low inventories in Europe – especially with the threat that Russia could invade Ukraine and cut gas supplies to Europe.
Russia provides 35%-40% of Europe’s gas supplies, totaling about 16.3 bcfd in 2021, according to analysts and U.S. energy data.
Gas futures traded around $25 per mmBtu in Europe and Asia, compared with just $4 in the United States. But no matter how high global prices rise, the United States only has capacity to turn about 12.4 bcfd of gas into LNG. The rest of the gas flowing to LNG facilities is used to run plant equipment.
Global markets will have to wait until later this year when more of the 18 liquefaction trains under construction at Calcasieu start producing LNG. The first trains at the plant started producing LNG in January.
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