U.S. natgas on track to fall for 6th week as storm cuts power use

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U.S. natural gas futures eased about 1% on Friday on record output and as Hurricane Ian heads for the Carolinas after knocking out power to over 2.6 million customers in Florida, reducing the amount of gas generators need to burn to produce electricity.

That puts the contract down about 1% and on track to decline for a sixth week in a row for the first time since January 2015.

Analysts said storms like Ian tend to cut demand for gas rather than supplies of the fuel since they usually knock out power and can cause liquefied natural gas (LNG) export terminals to shut.

Only about 2% of U.S. gas production comes from the federal offshore Gulf of Mexico – none of it in Florida – with most coming from shale basins like the Permian in West Texas and the Marcellus in Pennsylvania.

In its latest advisory, the U.S. National Hurricane Center said Ian would hit South Carolina later Friday as a Category 1 hurricane with maximum sustained winds of 85 miles (137 km) per hour. Utilities in the Carolinas said they were preparing for outages.

In other hurricane news, about 229,000 customers in Puerto Rico still lacked power, as did 59,000 in Nova Scotia after Hurricane Fiona battered the U.S. island on Sept. 18 and the Canadian province on Sept. 24.

Also weighing on gas prices, demand was expected to decline in October when the Cove Point LNG plant in Maryland shuts for a couple weeks of maintenance. Cove Point consumes about 0.8 billion cubic feet per day (bcfd) of gas.

U.S. gas use has already been reduced for months by the outage at the Freeport LNG export plant in Texas, the second-biggest U.S. LNG export plant. It was consuming about 2 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.

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Front-month gas futures for November delivery fell 4.6 cents, or 0.7%, to $6.828 per million British thermal units (mmBtu) at 9:11 a.m. EDT (1311 GMT).

The premium of futures for December over November rose to 27 cents per mmBtu, its highest since January 2011.

Despite recent declines, U.S. futures were still up about 82% so far this year as global gas prices have soared, feeding demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.

Gas was trading around $48 per mmBtu in Europe and $39 in Asia. That was an 8% decline for prices in Europe.

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.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 98.8 bcfd so far in September from a monthly record of 98.0 bcfd in August.

With milder weather coming, Refinitiv projected average U.S. gas demand, including exports, would slip from 91.5 bcfd this week to 89.2 bcfd next week before rising to 91.5 bcfd in two weeks when the weather starts to turn colder. The forecast for next week was higher than Refinitiv’s outlook on Thursday.

The average amount of gas flowing to U.S. LNG export plants rose to 11.5 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.