U.S. natgas futures ease to 6 week low on record output

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U.S. natural gas futures slid about 1% to a fresh six-week low on Tuesday on near record output and forecasts for less demand next week than previously expected.

Prices were also held in check on expectations demand would decline next month when the Cove Point liquefied natural gas (LNG) plant in Maryland shuts for a couple weeks of maintenance in October.

U.S. gas use has already been reduced for months by the ongoing outage at the Freeport LNG export plant in Texas which has left 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.

In Puerto Rico, meanwhile, LUMA Energy was slowly restoring electric service after Hurricane Fiona caused an island-wide power outage on Sunday.

Front-month gas futures fell 3.5 cents, or 0.5%, to settle at $7.717 per million British thermal units (mmBtu), their lowest close since Aug. 8 for a third day in a row.

That was also the first time the front-month declined for four consecutive days since December 2021.

In the spot gas market, the premium of the Henry Hub benchmark in Louisiana over the Waha hub in the Permian Shale in Texas rose to $2.71 per mmBtu on Tuesday, its highest since October 2020 as pipeline maintenance limits the amount of gas that can exit the Waha producing basin.

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That compares with an average premium of Henry Hub over Waha of $1.30 per mmBtu so far in September, 63 cents so far in 2022, $1.33 in 2021 and a five-year (2016-2020) average of 80 cents.

Despite recent declines, gas futures were still up about 107% so far this year 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 $56 per mmBtu in Europe and $43 in Asia. That was a 9% increase in European prices.

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 – have averaged just 1.3 bcfd so far in September, down from 2.5 bcfd in August and 10.8 bcfd in September 2021.

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 prevent the country from exporting more LNG.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 98.9 bcfd so far in September from a record 98.0 bcfd in August.

With the coming of cooler autumn weather, Refinitiv projected average U.S. gas demand, including exports, would slip from 91.6 bcfd this week to 90.1 bcfd next week. The forecast for next week was a little lower than Refinitiv’s outlook on Monday.

The average amount of gas flowing to U.S. LNG export plants rose to 11.3 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.