U.S. natgas falls 3% to 4-week low on drop in oil and global gas prices

U.S. natural gas futures fell about 3% to a fresh four-week low on Wednesday with output on track to hit a monthly record high and as oil and global gas prices drop.

In the U.S. West, however, spot prices soared to a two-year high while California avoided rotating power outages and demand hit a record high as homes and businesses cranked up their air conditioners to escape a brutal heat wave blanketing the drought-stricken region.

The decline in gas futures, meanwhile, also came as the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas leaves more gas in the United States for utilities to inject into stockpiles for next winter.

Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. Freeport LNG expects the facility to return to at least partial service in early to mid-November.

Front-month gas futures fell 27.3 cents, or 3.4%, to $7.872 per million British thermal units (mmBtu) at 10:04 a.m. EDT (1404 GMT), putting the contract on track for its lowest close since Aug. 9 for a second day in a row.

That also put the front-month down for a third day in a row for the first time since early August and kept it in technically oversold territory with a relative strength index (RSI) below 30 for a second consecutive day for the first time since early July.

Oil prices fell by around 4% on Wednesday to their lowest since Russia invaded Ukraine on demand fears stoked by looming recession risks and downbeat Chinese trade data.

So far this year, gas futures were up about 113% as higher prices in Europe and Asia keep demand for U.S. LNG exports strong. Global gas prices have soared due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.

Gas was trading around $65 per mmBtu in Europe and $55 in Asia. That was a 5% drop for European gas.

Russian gas exports via the three main lines into Germany – Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route – averaged just 1.3 bcfd so far in September, down from 2.5 bcfd in August and 10.8 bcfd in September 2021.

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U.S. gas futures 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 and the Freeport outage prevents the country from exporting more LNG.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 99.2 bcfd so far in September from a record 98.0 bcfd in August.

With cooler weather coming, Refinitiv projected average U.S. gas demand, including exports, would slide from 97.0 bcfd this week to 92.8 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Tuesday.

The average amount of gas flowing to U.S. LNG export plants rose to 11.2 bcfd so far in September from 11.0 bcfd in August. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.

The reduction in exports from Freeport is a problem for Europe, where most U.S. LNG has gone this year as countries there wean themselves off Russian energy.

Russia, the world’s second-biggest gas producer, has provided about a third of Europe’s gas in recent years, totaling about 18.3 bcfd in 2021. The European Union wants to cut Russian gas imports by two-thirds by the end of 2022 and refill stockpiles to 80% of capacity by Nov. 1 and 90% by Nov. 1 each year beginning in 2023.

Gas stockpiles in northwest Europe – Belgium, France, Germany and the Netherlands – were about 4% above their five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently around 84% of capacity.

That is much healthier than U.S. gas inventories, which were still about 11% below their five-year norm.