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U.S. natural gas futures hold near 12 week low on record output

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U.S. natural gas futures held near a 12-week low on Tuesday on record output and forecasts for lower demand next week than previously expected.

Ongoing power outages from Hurricane Ian at 391,000 homes and businesses in Florida after the storm hit the state on Sept. 28-29 helped reduce the amount of gas generators burned to produce electricity.

Gas demand was also reduced by outages at some liquefied natural gas (LNG) export plants, including Berkshire Hathaway Energy’s 0.8-billion cubic feet per day (bcfd) Cove Point in Maryland for about three weeks of planned work starting Oct. 1 and Freeport LNG’s 2.0-bcfd plant in Texas for unplanned work after an explosion on June 8. Freeport LNG expects the facility to return to at least partial service in early to mid-November.

Front-month gas futures for November delivery rose 1.2 cents, or 0.2%, to $6.482 per million British thermal units (mmBtu) at 9:02 a.m. EDT (1302 GMT). On Monday, the contract closed at its lowest level since July 12.

That kept the front-month in technically oversold territory with a relative strength index (RSI) below 30 for a third day in a row.

The premium of futures for December over November doubled over the past couple of weeks to 35 cents per mmBtu, its highest since October 2010.

In the spot market, meanwhile, next-day gas for Tuesday at the Waha hub in the Permian basin in West Texas fell to its lowest since December 2021.

Despite recent declines, U.S. futures were still up about 72% so far this year as soaring global gas prices have fed 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.

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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 October, the same as September but well below 9.2 bcfd in October 2021.

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Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 100.5 bcfd so far in October from a monthly record of 99.4 bcfd in September.

With cooler autumn-like weather coming, Refinitiv projected average U.S. gas demand, including exports, would rise from 88.9 bcfd this week to 89.8 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Monday, but the forecast for next week was lower.

The average amount of gas flowing to U.S. LNG export plants fell to 11.0 bcfd so far in October from 11.5 bcfd in September. 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.

So far this year, most U.S. LNG has gone to countries in Europe as they 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 currently about 6% above their five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently around 91% of capacity.

That is much healthier than U.S. gas inventories, which were still about 9% below their five-year norm.

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