US Natural Gas Futures Tumble Due to Milder Weather and Global Price Slump

An LNG tanker is guided by tug boats at the Cheniere Sabine Pass LNG export unit in Cameron Parish, Louisiana, U.S., April 14, 2022. REUTERS/Marcy de Luna

U.S. natural gas futures have been declining this week to a three-month low, after weather in North America was predicted to be milder than expected and global energy prices witnessed a slump.

The decline in crude oil and European gas prices has led the decline in prices.

American natural gas prices witnessed an eight week drop after a boost in domestic output and declining liquefied natural gas (LNG) exports allowed utilities to more easily refill their storage facilities.

U.S. natural gas futures dropped 5.41 percent at closing on Oct. 19 for the third day in a row this week.

“Gas market bears have multiple price-setting mechanisms to drive prices lower,” according to a study by energy consulting firm Gelber & Associates, reported Reuters.

The two biggest influencers continue to revolve around record-high dry gas production and a lack of demand due to milder temperatures recently, resulting in several back-to-back triple-digit weekly gas storage builds.

“Even the most stubborn market bulls have recently started to acknowledge the bearish fundamentals and are more readily concurring that the fall and early winter temperature forecasts are uninspiring at best,” said the report.

Average gas output in the United States has increased 0.2 billion cubic feet per day (Bcfd) in October from September, according to Reuters, using data from Refinitiv.

The data service said that milder weather will cause total demand for American LNG to fall from 101.0 Bcfd on Oct. 18 to 95.9 Bcfd next week.

Almost two-thirds of U.S. LNG exports went to Europe in the first nine months of 2022, as American energy companies diverted their cargoes from Asia due to an energy shortage in the EU caused by the Kremlin’s war in Ukraine.

In contrast, only 29 percent of U.S. LNG exports went to Europe last year.

America Leads In LNG Exports

Despite recent gas price declines, American LNG futures are up about 54 percent this year, as supply disruptions and continued sanctions on Russia over the Ukrainian crisis have caused global gas prices to soar, leading to more demand for U.S. LNG exports.

Gas Prices in Europe hit their all-time high of $90.91 on Aug. 25.

By Oct. 18, natural gas was trading at $32 per British thermal units (MMBtu) in Europe and $31 in Asia.

Front-month gas futures on Oct. 19 fell for the third day in a row by 30 cents to 5.38 percent, settling at $5.436 per million MMBtu—its lowest level since July 6.

European forward contracts fell 30 percent since last week, as increased LNG imports raised the level of gas storage in Europe to levels above 90 percent of capacity in time for winter.

Oil prices rose about 3 percent on Oct. 19 after dipping the previous day due to news of increasing rising U.S. supplies, recessions fears, and lower demand from China.

The seven main U.S. based natural gas export facilities have the total capacity to turn about 13.8 cubic feet per day of gas into exportable LNG.

However, the average amount of gas flowing to U.S. LNG export plants has fallen to 11.0 Bcfd this month, from 11.5 Bcfd in September due to maintenance issues.

This is well below the monthly high of 12.9 Bcfd in production from March this year.

There have been various shutdowns at major LNG export plants this year, according to Reuters.

Berkshire Hathaway Energy shutdown its 0.8 Bcfd plant at Cove Point, Maryland, for about three weeks of planned maintenance on Oct. 1.

The continued shutdown of Freeport 2.0 Bcfd LNG facility in Texas continues, after a mysterious gas explosion on June 8.

U.S. LNG exports may see an increase over the next several weeks, as the two key gas plants are expected to return to service, according to analysts.

Officials at the Freeport facility said that operations should mostly return to normal by early to mid-November, but some energy traders believe that the return will be delayed.

At least three vessels are expected to head to Freeport, according to Refinitiv data quoted by Reuters.

The LNG cargo ships, the Prism Brilliance, Prism Diversity, and Seapeak Methane, are all expected to arrive at the Texas facility through the end of November.

Reuters contributed to this report.