U.S. natural gas drop 5% on delayed Freeport LNG restart, less cold forecasts

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U.S. natural gas futures dropped about 5% to a two-week low on Friday on a delayed restart for the Freeport liquefied natural gas (LNG) export plant in Texas and forecasts for milder weather and lower demand over the next two weeks than previously expected.

Milder weather should allow utilities to leave more gas in storage. Gas stockpiles were about 2.4% below the five-year (2017-2021) average for this time of year.

Freeport LNG delayed the expected restart of its export plant to the end of the year from mid December, pending regulatory approval.

The plant, which can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG, shut on June 8 due to an explosion caused by inadequate operating and testing procedures, human error and fatigue, according to a report by consultants hired by the company to review the incident and propose corrective actions.

A few ships have been waiting in the Gulf of Mexico to pick up LNG from Freeport, including Prism Brilliance, Prism Diversity and Prism Courage, according to shipping data from Refinitiv.

Another factor weighing on prices has been efforts by the U.S. government to reduce the risk of a railroad worker strike. A rail strike could have cut coal deliveries to power plants, forcing generators to burn more gas to produce electricity.

Analysts at energy consulting firm Gelber & Associates warned, however, that the market was shrugging off a minor weather model showing a severe polar vortex was possible in mid December.

“Many gas market players and hedge funds will not want to be short going into this weekend because of the severity of this developing situation,” Gelber told customers in a note, pointing out that major weather models have missed the severity of some Arctic events in the past, like the February freeze in Texas in 2021.

Front-month gas futures fell 32.8 cents, or 4.9%, to $6.410 per million British thermal units (mmBtu) at 1:23 p.m. EST (1823 GMT), putting the contract on track for its lowest close since Nov. 18.

That also put the contract on track to decline about 9% for the week after rising about 19% during the prior two weeks.

In the spot market, meanwhile, gas prices in California have soared about 125% over the past two weeks as freezing weather and snow blankets parts of the state and pipeline outages and constraints limit gas flows.

In Northern California, the PG&E citygate hit its highest since February 2014, while next-day gas at the Southern California Border rose to its highest since September 2021.

U.S. gas futures are up about 75% so far this year as much higher global prices feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s invasion of Ukraine.

Gas was trading at $43 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $32 at the Japan Korea Marker (JKM) in Asia.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to a monthly record of 99.5 bcfd in November, up from 99.2 bcfd in October.

With colder weather coming, Refinitiv projected average U.S. gas demand, including exports, would jump from 115.7 bcfd this week to 121.4 bcfd next week and 129.4 bcfd in two weeks. The forecast for next week was lower than Refinitiv’s outlook on Thursday.

The average amount of gas flowing to U.S. LNG export plants jumped to 12.7 bcfd so far in December, up from 11.8 bcfd in November. Although it is still early in the month, that is just shy of the monthly record of 12.9 bcfd in March despite the ongoing outage at Freeport.