U.S. natgas futures drop 8% to 18-month low on forecasts for less demand

Credit: REUTERS/DADO RUVIC

Adds closing prices

Jan 18 (Reuters) - U.S. natural gas futures plunged about 8% to an 18-month low on Wednesday on forecasts for less heating demand in late January than previously expected.

Adding to the price drop, a growing number of analysts have said they do not expect Freeport LNG's export plant in Texas to restart until February or later even though the company has said repeatedly that the liquefied natural gas (LNG) plant was on track to exit its seven-month outage in the second half of January, pending regulatory approvals.

Whenever Freeport returns, demand for U.S. gas will jump, which should cause prices to rise. The plant can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG, which is about 2% of U.S. daily production.

Front-month gas futures NGc1 for February delivery fell 27.5 cents, or 7.7%, to settle at $3.311 per million British thermal units (mmBtu), their lowest close since June 22, 2021.

That price drop pushed the contract back into technically oversold territory with a relative strength index (RSI) below 30 for the 12th time in 14 days.

It also continues the record volatility seen last year, with the contract now up or down over 5% on six of the 11 trading days in 2023.

With colder weather coming, Refinitiv forecast U.S. gas demand, including exports, would jump from 121.4 bcfd this week to 128.7 bcfd next week. The forecast for next week was lower than Refinitiv's outlook on Tuesday.

"The last contract on the winter strip (March) should never trade at a discount to the first month on the summer strip (April) ... but that is what is threatening," Bob Yawger, director of energy futures at Mizuho, said last week.

The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks. It calls the spread the "widow maker" because rapid price moves resulting from changing weather forecasts have forced some speculators out of business. Among them was the Amaranth hedge fund, which lost more than $6 billion on gas futures in 2006.

Traders said the biggest market uncertainty remains when the Freeport plant will return after shutting due to a fire on June 8, 2022.

Gas started flowing to the Freeport plant on Jan. 14, according to data from Refinitiv, but was only being used to maintain the flare system, according to a source familiar with the plant.

Although Freeport LNG says the plant is still on track to restart in the second half of January, pending regulatory approvals, that restart timeline has been delayed many times from October to November to December and most recently to January.

Freeport has not yet filed a request with federal regulators to restart the plant, according to a source familiar with the company's filings.

Even when the company was saying the plant could restart last year, many analysts said it would likely take Freeport until the first or second quarter of 2023 to get the plant ready due to the large amount of work needed to satisfy federal regulators, including training staff in new safety procedures.

Even though some vessels have turned away from Freeport in recent weeks, a few tankers, including Prism Diversity, Prism Courage and Prism Agility, were still waiting in the Gulf of Mexico to pick up LNG from the plant. Some have been there since early November.

Week ended Jan 13 (Forecast)

Week ended Jan 6 (Actual)

Year ago Jan 13

Five-year average Jan 13

U.S. weekly natgas storage change (bcf):

-71

+11

-156

-203

U.S. total natgas in storage (bcf):

2,831

2,902

2,839

2,786

U.S. total storage versus 5-year average

+1.6%

-1.4%

Global Gas Benchmark Futures ($ per mmBtu)

Current Day

Prior Day

This Month Last Year

Prior Year Average 2022

Five Year Average (2018-2022)

Henry Hub NGc1

3.39

3.59

4.26

6.54

3.60

Title Transfer Facility (TTF) TRNLTTFMc1

22.01

17.26

28.25

40.50

14.39

Japan Korea Marker (JKM) JKMc1

22.73

26.81

28.53

34.11

14.31

Refinitiv Heating (HDD), Cooling (CDD) and Total (TDD) Degree Days

Two-Week Total Forecast

Current Day

Prior Day

Prior Year

10-Year Norm

30-Year Norm

U.S. GFS HDDs

429

433

426

438

443

U.S. GFS CDDs

2

3

1

3

3

U.S. GFS TDDs

431

436

427

441

446

Refinitiv U.S. Weekly GFS Supply and Demand Forecasts

Prior Week

Current Week

Next Week

This Week Last Year

Five-Year Average For Month

U.S. Supply (bcfd)

U.S. Lower 48 Dry Production

98.7

98.9

99.0

93.2

88.8

U.S. Imports from Canada

8.6

8.6

9.1

10.2

9.4

U.S. LNG Imports

0.0

0.0

0.0

0.2

0.4

Total U.S. Supply

107.2

107.4

108.2

103.6

98.6

U.S. Demand (bcfd)

U.S. Exports to Canada

2.7

2.9

2.9

2.3

2.8

U.S. Exports to Mexico

5.4

5.3

5.2

5.9

5.3

U.S. LNG Exports

12.3

12.2

11.8

12.9

7.2

U.S. Commercial

14.7

14.8

16.5

19.8

17.1

U.S. Residential

23.7

24.4

27.6

33.9

29.8

U.S. Power Plant

29.7

29.6

31.2

30.9

28.5

U.S. Industrial

24.6

24.6

25.6

26.2

25.6

U.S. Plant Fuel

4.9

4.9

4.9

4.9

4.9

U.S. Pipe Distribution

2.7

2.7

2.9

2.7

2.4

U.S. Vehicle Fuel

0.1

0.1

0.1

0.1

0.1

Total U.S. Consumption

100.3

101.1

108.8

118.5

108.4

Total U.S. Demand

120.7

121.4

128.7

139.6

123.7

U.S. weekly power generation percent by fuel - EIA

Week ended Jan 20

Week ended Jan 13

Week ended Jan 6

Week ended Dec 30

Week ended Dec 23

Wind

15

11

12

11

9

Solar

2

2

2

2

2

Hydro

7

7

7

6

6

Other

2

2

2

2

2

Petroleum

Natural Gas

36

38

36

35

37

Coal

18

19

18

23

24

Nuclear

21

21

23

19

19

SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu)

Hub

Current Day

Prior Day

Henry Hub NG-W-HH-SNL

3.43

3.43

Transco Z6 New York NG-CG-NY-SNL

2.97

3.80

PG&E Citygate NG-CG-PGE-SNL

22.15

16.08

Eastern Gas (old Dominion South) NG-PCN-APP-SNL

2.58

2.58

Chicago Citygate NG-CG-CH-SNL

3.13

3.05

Algonquin Citygate NG-CG-BS-SNL

4.08

7.00

SoCal Citygate NG-SCL-CGT-SNL

23.50

21.00

Waha Hub NG-WAH-WTX-SNL

1.77

0.75

AECO NG-ASH-ALB-SNL

2.98

2.77

SNL U.S. Power Next-Day Prices ($ per megawatt-hour)

Hub

Current Day

Prior Day

New England EL-PK-NPMS-SNL

60.50

72.75

PJM West EL-PK-PJMW-SNL

42.50

50.25

Ercot North EL-PK-ERTN-SNL

17.50

16.25

Mid C EL-PK-MIDC-SNL

167.30

131.00

Palo Verde EL-PK-PLVD-SNL

133.50

117.50

SP-5 EL-PK-SP15-SNL

180.50

150.50

(Reporting by Scott DiSavino; Editing by Paul Simao)

((scott.disavino@thomsonreuters.com; +1 332 219 1922; Reuters Messaging: scott.disavino.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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