U.S. Natgas Futures Drop 5% on Rising Output, Milder Forecasts

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U.S. natural gas futures fell about 5% on Friday as output slowly rises and on forecasts for milder weather and lower demand over the next two weeks than previously expected.

That decline comes despite a jump in the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants to a near seven-week high following maintenance outages at some Gulf Coast plants.

Although the weather is expected to turn milder next week, it’s still hot in many parts of the country now.

In the spot market, next-day power at the PJM West hub and gas at the Dominion South hub in Pennsylvania jumped to their highest since the February freeze in 2021 as homes and businesses crank up air conditioners to escape the heat.

High air conditioning use also boosted peak power demand in Texas to a record for the month of May on Thursday. The state’s grid operator forecast demand would likely break that record peak on Friday.

U.S. front-month gas futures for June delivery fell 37.9 cents, or 4.6%, to $7.929 per million British thermal units (mmBtu) at 9:17 a.m. EDT (1317 GMT).

Despite Friday’s decline, the contract was still up about 4% for the week after falling about 5% last week.

Gas was trading around $28 per mmBtu in Europe and $22 in Asia. The U.S. contract rose to a 13-year high near $9 on May 6.

U.S. futures lag far behind global prices because the United States is the world’s top producer, with all the gas it needs for domestic use while capacity constraints inhibit exports of more LNG.

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Data provider Refinitiv said average gas output in the U.S. Lower 48 states climbed to 94.9 billion cubic feet per day (bcfd) so far in May from 94.5 bcfd in April. That compares with a monthly record of 96.1 bcfd in November 2021.

Refinitiv projected average U.S. gas demand, including exports, would hold near 89.7 bcfd this week and next before sliding to 88.7 bcfd in two weeks.

The average amount of gas flowing to U.S. LNG export plants rose to 12.3 bcfd so far in May from 12.2 bcfd in April. That compares with a monthly record of 12.9 bcfd in March. The United States can turn about 13.2 bcfd of gas into LNG.

On a daily basis, however, LNG feedgas was on track to hit a near seven-week high of 13.3 bcfd on Friday.

Since the United States will not be able to produce much more LNG soon, it has worked with allies to divert exports from elsewhere to Europe to help European Union (EU) countries and others break their dependence on Russian gas after Russia’s Feb. 24 invasion of Ukraine.

Russian gas exports to Europe rose to around 8.1 bcfd on Thursday from about 7.8 bcfd on Wednesday on the three mainlines into Germany: North Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route. That compares with an average of 11.9 bcfd in May 2021.

Gas stockpiles in Northwest Europe – Belgium, France, Germany and the Netherlands – were about 14% below the five-year (2017-2021) average for this time of year, down from 39% below the five-year norm in mid-March, according to Refinitiv. Storage was currently about 37% of full capacity.

That is healthier than U.S. inventories, which were around 15% below their five-year norm, because high European gas prices have kept LNG imports strong while Russia keeps supplying fuel via pipeline.