That price drop came despite bullish forecasts calling for more gas demand this week than previously expected and a drop in output over the past couple of days as cold weather freezes wells in some producing basins.
Earlier this week, Freeport said its export plant was ready to begin the process of exiting a seven-month outage, pending regulatory approval. But some analysts have stuck with their earlier estimates that it will take until February, March or even later for the plant to actually start pulling in big amounts of pipeline gas.
Freeport, the second-biggest U.S. LNG exporter, is important because the market expects gas prices and demand to rise once the plant restarts. The facility, which shut in a fire on June 8, 2022, can pull in about 2.1 billion cubic feet per day (bcfd) of gas and turn it into LNG when operating at full power.
That is about 2% of what U.S. gas producers pull out of the ground each day.
Even though vessels have turned away from Freeport in recent weeks, several tankers were still waiting in the Gulf of Mexico to pick up LNG from the plant, including Prism Diversity since around Oct. 28, Prism Courage since around Nov. 4, Prism Agility since around Jan. 2 and Corcovado LNG since around Jan. 22.
In addition, other ships were sailing toward Freeport with both Prism Brilliance and Kmarin Diamond expected to arrive around Jan. 26.
Front-month gas futures for February delivery fell 16.1 cents, or 4.9%, to $3.097 per million British thermal units (mmBtu) at 8:15 a.m. EST (1315 GMT), putting the contract on track for its lowest close since June 7, 2021.
That price drop pushed the front-month back into technically oversold territory with a relative strength index (RSI) below 30 for the first time in three days.
U.S. GAS OUTPUT
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 98.6 bcfd so far in January, up from 96.7 bcfd in December. That compares with a monthly record of 99.9 bcfd in November 2022.
On a daily basis, however, output was on track to drop about 1.7 bcfd over the past two days to a preliminary three-week low of 97.4 bcfd on Wednesday as cold weather starts to cause wells to freeze – known as freeze-offs in the energy industry – in some producing basins like the Bakken in North Dakota, the Permian in Texas and Appalachia in Pennsylvania.
Even though the forecasts call for less cold weather over the next two weeks than previously expected, temperatures are still expected to be lower next week than this week.
With colder weather coming, Refinitiv forecast U.S. gas demand, including exports, would jump from 130.9 bcfd this week to 138.7 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Tuesday, while the forecast for next week was lower.
The average amount of gas flowing to U.S. LNG export plants rose to 12.3 bcfd so far in January, up from 11.9 bcfd in December. That compares with a monthly record of 12.9 bcfd in March 2022.
The seven big U.S. export plants, including Freeport, can turn about 13.8 bcfd of gas into LNG.