U.S. natgas futures slide 2% on record output, lower demand

Front-month gas futures for June delivery on the New York Mercantile Exchange fell 4.1 cents, or 1.8%, to $2.277 per million British thermal units (mmBtu) at 8:04 a.m. EDT (1204 GMT).

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 101.7 billion cubic feet per day (bcfd) so far in May, up from a record 101.4 bcfd in April.

Meteorologists projected the weather in the Lower 48 states would turn from colder-than-normal now to near- to warmer-than-normal from May 6-17.

With the weather turning seasonally warmer, Refinitiv forecast U.S. gas demand, including exports, would slide from 95.4 bcfd this week to 91.1 bcfd next week. The forecast for this week was lower than Refinitiv’s outlook on Monday, while its forecast for next week was higher.

Gas flows to the seven big U.S. LNG export plants slid to an average of 13.5 bcfd so far in May, down from a record 14.0 bcfd in April. The decline this week was due to small reductions at Cheniere Energy Inc’s Sabine Pass and Venture Global LNG’s Calcasieu Pass in Louisiana.

Last month’s record was higher than the 13.8 bcfd of gas the seven plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG.

GLOBAL GAS PRICE COLLAPSE

Some analysts have questioned whether this year’s gas price collapse in Europe and Asia could force U.S. exporters to cancel LNG cargoes this summer after mostly mild weather over the winter left massive amounts of gas in storage. In 2020, at least 175 LNG shipments were canceled due to oversupply and weak demand.

But for now, most analysts say energy security concerns following Russia’s invasion of Ukraine in February 2022 should keep global gas prices high enough to sustain record U.S. LNG exports in 2023.

Gas was trading at a 21-month low of around $12 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and a 22-month low of $12 at the Japan Korea Marker (JKM) in Asia.

Even though TTF gas prices were down about 49% and JKM was down about 61% so far this year, traders said those prices were still high enough to feed demand for U.S. LNG exports.

U.S. gas futures, which were also down about 49% so far this year, lag far behind global prices because the United States is the world’s top producer with all the fuel it needs for domestic use, while capacity constraints prevent the country from exporting more LNG.

Gas stockpiles in northwest Europe – Belgium, France, Germany and the Netherlands – were currently at about 60% of capacity, keeping the amount of gas in storage about 57% above its five-year (2018-2022) average for the time of year, according to Refinitiv.

That is much more gas in storage than in U.S. inventories, which were about 22% above their five-year norm again due to mostly mild weather last winter.

To ensure Europe has enough gas for the winter heating season, the European Union wants utilities to refill stockpiles to 90% of capacity by Nov. 1.