U.S. natgas futures fall 5% on rising output, mild weather forecasts

U.S. natural gas futures dropped about 5% on Tuesday after soaring almost 12% in the prior session as weeks of extremely volatile trade continue. Traders noted prices fell on rising output and forecasts for the weather to remain milder than normal
through early November.

Even though the weather is expected to remain mild, traders noted that prices declined despite expectations for cooler weather and higher heating demand next week than previously forecast and as a rise in global gas prices keeps demand for U.S. LNG exports strong. Gas prices around the world were trading near record highs that were about six times over prices in the United States, as utilities in Europe and Asia scramble for all the fuel they can get to refill stockpiles ahead of the winter heating season and meet current energy shortfalls causing power blackouts in China.

On its second-to-last-day as the front-month, gas futures for November delivery fell 27.7 cents, or 4.7%, to $5.621/MMBtu at 10:09 a.m. EDT (1409 GMT). On Monday, the contract soared 11.7% to its highest close since Oct. 5 when it settled at its highest since December 2008. 

Even though U.S. gas was trading near its highest in 12 years, U.S. prices have been held back from reaching the lofty levels seen in Europe and Asia. That's because the United States has more than enough gas in storage for the winter, ample production to meet domestic demand and U.S. LNG export plants were already operating near full capacity so no matter how high overseas prices rise, the United States could not produce more LNG for export. 

Analysts expect U.S. gas inventories will reach 3.6 Tft³ by the start of the winter heating season in November, which they said would be a comfortable level even though it falls short of the 3.7 Tft³ five-year average. U.S. stockpiles were currently about 4% below the five-year (2016-2020) average for this time of year. In Europe, analysts say stockpiles were about 15% below normal. 

Data provider Refinitiv said output in the U.S. Lower 48 states has averaged 92.2 billion Bft³/d so far in October, up from 91.1 Bft³/d in September. That compares with a monthly record of 95.4 Bft³ in November 2019. Refinitiv projected average U.S. gas demand, including exports, would rise from 89.2 Bft³ this week to 92.4 Bft³ next week as more homes and businesses turn on their heaters. The forecast for next week was higher than Refinitiv projected on Monday.

The amount of gas flowing to U.S. LNG export plants has averaged 10.4 Bft³/d so far in October, the same as in September, but was expected to rise in coming weeks as some liquefaction trains exit maintenance outages. With gas prices near $30/MMBtu in Europe and $34 in Asia, versus around $6 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States can produce. But no matter how high global gas prices rise, the United States has the capacity to turn only about 10.5 Bft³/d of gas into LNG. 

Global markets will have to wait until later this year to get more, when the sixth liquefaction train at Cheniere Energy Inc's Sabine Pass and Venture Global LNG's Calcasieu Pass in Louisiana are expected to start producing LNG in test mode.

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