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U.S. natgas futures slip as milder weather cuts heating demand

Credit: REUTERS/ANGUS MORDANT

U.S. natural gas futures slipped on Tuesday from a six-week high in the prior session on forecasts for milder weather and lower heating demand over the next two weeks than previously expected.

Adds closing prices

April 20 (Reuters) - U.S. natural gas futures slipped on Tuesday from a six-week high in the prior session on forecasts for milder weather and lower heating demand over the next two weeks than previously expected.

The price decline came despite a dip in output in recent days and ongoing near-record liquefied natural gas (LNG) and pipeline exports.

Front-month gas futures NGc1 fell 2.2 cents, or 0.8%, to settle at $2.727 per million British thermal units. On Monday, the contract closed at its highest since March 3.

With stockpiles at normal levels and the weather expected to turn seasonally milder, traders said price spikes were unlikely in coming weeks. That helped drive futures at-the-money implied volatility NGATMIV down to 27.5%, its lowest since May 2019. Implied volatility, a determinant of an option's premium, rose to 115.1% in February during the Texas freeze, its second highest on record.

Implied volatility hit a record high of 117.5% in November 2018 due to big changes in winter weather forecasts that caused a rapid increase in prices and the failure and liquidation of commodity trading adviser OptionSellers.com. Volatility hit a record low of 18.6% in April 2019 on mild summer forecasts and a belief that record production at the time would meet any increase in demand and keep prices in check.

Data provider Refinitiv said gas output in the Lower 48 U.S. states averaged 91.4 billion cubic feet per day (bcfd) so far in April, down from 91.6 bcfd in March. That compares with a record monthly high of 95.4 bcfd in November 2019.

Refinitiv projected average gas demand, including exports, would fall from 97.4 bcfd this week to 89.0 bcfd next week as the weather turns seasonally milder. Those demand forecasts were lower than Refinitiv projected on Monday.

The amount of gas flowing to U.S. LNG export plants averaged 11.1 bcfd so far in April, which would top the monthly record of 10.8 bcfd in March.

Buyers around the world continue to purchase near-record amounts of U.S. gas because prices in Europe TRNLTTFMc1 and Asia JKMc1 remain high enough to cover the cost of buying and transporting the U.S. fuel across the ocean.

Traders, however, noted U.S. LNG exports cannot rise much more until new units enter service in late 2021, since the United States only has the capacity to export about 10.5 bcfd of gas as LNG. LNG plants pull in a little more gas than they export since they use some of the fuel to run the facility.

U.S. pipeline exports to Mexico averaged 6.1 bcfd so far in April, up from 5.9 bcfd in March and on track to top the monthly record of 6.0 bcfd in September 2020, according to Refinitiv data.

Week ended Apr 16 (Forecast)

Week ended Apr 9 (Actual)

Year ago Apr 16

Five-year average Apr 16

U.S. natgas storage (bcf):

+53

+61

+47

+37

Global Gas Benchmark Futures ($ per mmBtu)

Current Day

Prior Day

This Month Last Year

Prior Year Average 2020

Five Year Average (2016-2020)

Henry Hub NGc1

2.73

2.73

1.76

2.13

2.66

Title Transfer Facility (TTF) TRNLTTFMc1

7.49

7.41

2.11

3.24

5.19

Japan Korea Marker (JKM) JKMc1

8.67

8.25

2.46

4.22

6.49

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

133

137

129

120

126

U.S. GFS CDDs

40

39

47

47

38

U.S. GFS TDDs

173

176

176

167

164

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

91.5

90.2

90.6

91.4

80.8

U.S. Imports from Canada

6.4

7.0

6.5

6.7

8.0

U.S. LNG Imports

0.0

0.0

0.0

0.0

0.1

Total U.S. Supply

97.9

97.1

97.1

98.1

88.9

U.S. Demand (bcfd)

U.S. Exports to Canada

2.6

2.3

2.3

2.5

2.6

U.S. Exports to Mexico

6.6

6.2

6.1

4.6

4.1

U.S. LNG Exports

11.0

11.2

11.0

8.0

3.2

U.S. Commercial

7.7

9.0

7.1

8.7

8.2

U.S. Residential

10.1

12.5

9.2

11.9

11.7

U.S. Power Plant

25.4

26.0

24.4

26.8

23.7

U.S. Industrial

22.6

23.4

22.3

22.7

21.8

U.S. Plant Fuel

4.5

4.5

4.5

4.5

4.5

U.S. Pipe Distribution

1.9

2.1

1.8

2.1

2.1

U.S. Vehicle Fuel

0.1

0.1

0.1

0.1

0.1

Total U.S. Consumption

72.3

77.6

69.5

76.8

72.0

Total U.S. Demand

92.4

97.4

89.0

91.9

81.9

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

Hub

Current Day

Prior Day

Henry Hub NG-W-HH-SNL

2.75

2.63

Transco Z6 New York NG-CG-NY-SNL

2.32

2.24

PG&E Citygate NG-CG-PGE-SNL

3.82

3.76

Dominion South NG-PCN-APP-SNL

2.15

2.10

Chicago Citygate NG-CG-CH-SNL

2.72

2.64

Algonquin Citygate NG-CG-BS-SNL

2.44

2.70

SoCal Citygate NG-SCL-CGT-SNL

3.30

3.60

Waha Hub NG-WAH-WTX-SNL

2.55

2.51

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

Hub

Current Day

Prior Day

New England EL-PK-NPMS-SNL

27.50

35.25

PJM West EL-PK-PJMW-SNL

31.75

31.00

Ercot North EL-PK-ERTN-SNL

29.50

46.75

Mid C EL-PK-MIDC-SNL

41.44

47.25

Palo Verde EL-PK-PLVD-SNL

25.25

30.25

SP-15 EL-PK-SP15-SNL

28.50

30.25

(Reporting by Scott DiSavino; editing by David Evans and Marguerita Choy)

((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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