U.S. natgas fall on mild weather, expected big U.S. storage build

U.S. natural gas futures fell over 4% from a seven-year high in the prior session on forecasts for continued mild weather over the next two weeks that should allow utilities to put enough gas into U.S. storage for the winter heating season when demand for the fuel peaks.

Stockpiles were about 7% below normal for this time of year in the United States versus over 20% below normal in some European countries, according to analysts and government data. U.S. prices dropped despite gas in Asia trading at fresh record highs and forecasts calling for more U.S. demand over the next two weeks as warmer-than-usual weather in some parts of the country will cause some homes and businesses to keep using their air conditioners.

On their first day as the front month, gas futures for November delivery were down 27.5 cents, or 4.7%, to $5.605 per million British thermal units (mmBtu) at 9:26 a.m. EDT (1326 GMT). On Tuesday, when October was still the front-month, the contract closed at its highest since February 2014 for a second day in a row as soaring global gas prices keep demand for U.S. liquefied natural gas (LNG) strong.

The United States exports about 10% of the gas it produces as LNG. Sharp price changes over the past few days have pushed futures at-the-money implied volatility to 91.4%, its highest since February. In February, implied volatility, a determinant of an option's premium, soared to 115.1% during the Texas freeze, its second highest on record.

Data provider Refinitiv said gas output in the U.S. Lower 48 states had fallen to an average of 90.9 billion cubic feet per day (bcfd) so far in September from 92.0 bcfd in August, due mostly to Hurricane Ida-related losses along the Gulf Coast. That compares with a monthly record of 95.4 bcfd in November 2019. With the coming of seasonally cooler weather, Refinitiv projected that average U.S. gas demand, including exports, would rise from 82.6 bcfd this week to 83.7 bcfd next week as homes and businesses start cranking up their heaters.

Those forecasts were higher than Refinitiv expected on Tuesday. With gas prices at or near record highs of around $28 per mmBtu in Europe and $29 in Asia versus just about $6 in the United States, traders said buyers around the world would keep purchasing all the LNG the United States could produce. Despite reductions at several plants this month, the amount of gas flowing to U.S. LNG export plants has slipped modestly to an average of 10.3 bcfd so far in September from 10.5 bcfd in August, according to Refinitiv.

But no matter how high global prices rise, the United States only has the capacity to turn about 10.5 bcfd of gas into LNG. Global markets will have to wait until later this year to get more from the United States when the sixth liquefaction train at Cheniere Energy Inc's Sabine Pass and Venture Global LNG's Calcasieu Pass in Louisiana will likely start producing LNG in test mode.

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