US natgas futures slip 2% from 1-month high on less cold forecasts

That price decline came despite a monthly drop in gas output in February and an increase in the amount of gas flowing to liquefied natural gas (LNG) export plants to near record highs as Freeport LNG’s export plant in Texas pulled in more gas after exiting an outage caused by a fire in June 2022.

Front-month gas futures for April delivery fell 4.4 cents, or 1.6%, to $2.703 per million British thermal units at 9:00 a.m. EST (1400 GMT). On Tuesday, the contract closed at its highest since Jan. 27 for a second day in a row.

Freeport LNG, the second-biggest U.S. LNG export plant, was on track to pull in more than 0.8 billion cubic feet per day (bcfd) of gas from pipelines for a fourth day in a row on Wednesday, according to data provider Refinitiv.

When operating at full power, Freeport LNG can turn about 2.1 bcfd of gas into LNG for export.

Freeport LNG said last week that it could be consuming about 2.0 bcfd of feedgas “over the next several weeks.” Some analysts, however, have said Freeport LNG will likely not return to full capacity until the end of April.

Federal regulators have already approved the restart of two of Freeport LNG’s three liquefaction trains (Trains 2 and 3). Liquefaction trains turn gas into LNG. On Monday, Freeport LNG asked regulators for permission to restart the third (Train 1).

The total amount of gas flowing to all big U.S. LNG export plants jumped to 12.8 bcfd in February, up from 12.3 bcfd in January. That was just shy of the monthly record high of 12.9 bcfd set in March 2022 before Freeport LNG shut.

The seven big U.S. LNG export plants, including Freeport LNG, can turn about 13.8 bcfd of gas into LNG.

SUPPLY AND DEMAND

Refinitiv said average gas output in the U.S. Lower 48 states dropped to 98.2 bcfd in February from 98.9 bcfd in January. That compares with a monthly record high of 99.9 bcfd in November 2022.

Analysts blamed the production decline on recent drops in gas prices of 40% in January and 35% in December that caused several energy firms to reduce the number of rigs they were using to drill for gas.

In addition, extreme cold in early February also cut gas output by freezing oil and gas wells in several producing basins.

Meteorologists forecast the weather in the Lower 48 states would remain mostly colder-than-normal through March 16 after several near- to warmer-than-normal days from March 1-7.

Even with colder weather coming, Refinitiv forecast U.S. gas demand, including exports, would ease from 120.8 bcfd this week to 119.1 bcfd next week, mostly on expectations that power generators would burn less gas to produce electricity.

The demand forecast for this week was higher than Refinitiv’s outlook on Tuesday, while the forecast for next week was lower.

Mostly mild weather so far this year, which caused prices to collapse in January and February, has prompted utilities to pull less gas from storage than normal.

Gas stockpiles were about 15% above their five-year average (2018-2022) in the week ended Feb. 17 and were expected to end up about 20% above normal during the week ended Feb. 24, according to analysts’ estimates.