U.S. natural gas futures slid about 2% on Friday on forecasts for less demand this week than previously expected due in part to the shutdown of the Freeport liquefied natural gas (LNG) export plant in Texas, which freed up more fuel for utilities to inject into storage.
The Freeport shutdown and cooler weather from thunderstorms also helped prevent peak power demand in Texas from breaking the all-time high so far this week, analysts at EBW analytics said in a report. The state’s grid operator, however, forecast that demand would hit record levels on Friday and Monday.
Analysts projected that the Freeport shutdown would reduce the amount of gas available to the rest of the world, especially in Europe where much of the gas has gone in recent months as countries look to wean themselves off Russian supplies after Moscow’s invasion of Ukraine.
But leaving more gas in the United States should give utilities a chance to rebuild extremely low U.S. stockpiles more quickly. Freeport, the second-biggest U.S. LNG export plant, consumes about 2 billion cubic feet per day (bcfd) of gas, so a three-week shutdown would result in about 42 billion cubic feet (bcf) more gas being available to the U.S. market.
U.S. storage was currently about 15%, or 340 bcf, below normal levels for this time of year, its lowest since April 2019.
Front-month gas futures for July delivery fell 21.9 cents, or 2.4%, to $8.744 per million British thermal units (mmBtu) at 9:13 a.m. EDT (1313 GMT).
For the week, the contract was on track to gain about 3% after falling about 2% last week.
In the spot market, meanwhile, next-day power for Friday at the Mid-Columbia hub in the Pacific Northwest dropped to its lowest since July 2020 due to an over abundance of cheap hydropower that is causing other power plants to reduce output.
U.S. gas futures were up about 134% so far this year as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Russia’s Feb. 24 invasion of Ukraine stoked fears Moscow might cut gas supplies to Europe.
Gas was trading around $26 per mmBtu in Europe and $23 in Asia.
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 additional LNG exports.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states fell to 94.8 bcfd so far in June from 95.1 bcfd in May. That compares with a monthly record of 96.1 bcfd in December 2021.
With hotter weather coming, Refinitiv projected that average U.S. gas demand, including exports, would rise from 89.4 bcfd this week to 93.0 bcfd for the next two weeks. The forecast for this week was lower than Refinitiv’s outlook on Thursday.
The average amount of gas flowing to U.S. LNG export plants fell to 12.2 bcfd so far in June from 12.5 bcfd in May, according to data from Refinitiv. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.6 bcfd of gas into LNG.
With the shutdown of Freeport, LNG feedgas fell from a recent high of 12.9 bcfd on Tuesday to around 10.6 bcfd on Thursday, the lowest since late February. It was on track to rise to 10.9 bcfd on Friday. Freeport was pulling in about 2.0 bcfd before the shutdown.