That put the gas contract on track to drop over 63% over the past seven weeks, its biggest seven-week collapse in history after weather in the U.S. Lower 48 states was the second warmest on record in January with an average temperature of about 41.8 degrees Fahrenheit (5.7 Celsius).
The warmest January on record was in 2006 when the temperature averaged 42.8 F, according to data from Refinitiv and the federal government.
In an outlook that has further depressed gas prices, meteorologists forecast the current extreme cold freezing parts of the country would end on Feb. 4 and average temperatures will climb back to mostly above-normal levels from Feb. 5 through at least Feb. 18.
The gas price drop came even though the current cold cut output by freezing oil and gas wells and despite growing expectations the Freeport liquefied natural gas (LNG) export plant in Texas could start pulling in big amounts of fuel as it restarts LNG production in coming weeks.
Federal regulators this week approved Freeport’s plan to start sending gas to one of the plant’s three liquefaction trains, which turn gas into LNG. On Thursday, Freeport asked regulators for permission to start loading LNG on ships to free up space in the storage tanks for the new LNG expected to be produced soon.
Analysts, however, have said they still do not expect Freeport to return to full LNG production until mid-March or later.
Freeport, the second-biggest U.S. LNG export plant, shut after a fire in June 2022. The energy market expects gas prices to rise once the plant starts producing LNG again. When operating at full power, Freeport can turn about 2.1 billion cubic feet (bcf) of gas into LNG each day. That is about 2% of total U.S. daily gas production.
Federal regulators will hold a public meeting on Freeport on Feb. 11 to provide members of the community and other interested parties an opportunity to voice their concerns about Freeport’s restart plans and get an update on what’s happening at the plant.
Over the past week, U.S. gas output has dropped about 3.9 billion cubic feet per day (bcfd) to a one-month low of 93.6 bcfd as winter storms freeze oil and gas wells – known as freeze-offs – in several states, including Texas, Oklahoma, New Mexico and Pennsylvania.
Front-month gas futures for March delivery on the New York Mercantile Exchange (NYMEX) fell 6.1 cents, or 2.5%, to $2.395 per million British thermal units (mmBtu) at 10:00 a.m. EST (1500 GMT), putting the contract on track for its lowest close since December 2020.
That put the contract down about 22.9% this week, its biggest weekly decline since plunging 23.0% in December.
With extreme cold blanketing the U.S. Northeast, next-day power prices for Friday in New England soared 140% to around $237 per megawatt hour (MWh), their highest since late December.
Spot gas prices in New England soared 437% to $26 per mmBtu, also their highest since late December. At those prices, it makes sense for some New England power generators to burn oil instead of gas. The region was currently getting about 11% of its generation from oil and 24% from gas.
On average, about 50% of the power generated in New England comes from gas with less than 1% from oil. But on the coldest days, oil-fired generators can produce over 20% of the grid’s power.
That’s because most of the pipeline gas going to New England is used to heat homes and businesses on those cold days, forcing generators to rely on more expensive oil and LNG.