U.S. natural gas futures jump 5%

U.S. natural gas futures jumped about 5% on Wednesday on forecasts for colder weather and higher heating demand over the next two weeks and as short traders took profits after prices fell to a five-week low in the prior session. That colder weather should force utilities to pull more gas from storage. Gas stockpiles were about 2.4% below the five-year (2017-2021) average for this time of year. The price increase came despite a 3% drop in U.S. oil futures to their lowest December 2021 for a second day in a row and a delayed restart for the Freeport liquefied natural gas (LNG) export plant in Texas.

Last week, Freeport LNG delayed the restart of its LNG export plant from mid-December to the end of the year. Some analysts do not expect Freeport to return until January, February or later as federal pipeline safety regulators will probably take longer than Freeport expects for them to review and approve the restart plan once the company submits it.

At least one LNG vessel, Prism Brilliance, gave up on Freeport after the company delayed the planned restart last week, according to ship tracking data from Refinitiv. The ship is now on its way to Jamaica. But Prism Diversity and Prism Courage were still waiting in the Gulf of Mexico to pick up LNG from Freeport.

The plant, which can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG, shut on June 8 due to an explosion caused by inadequate operating and testing procedures, human error and fatigue, according to a report by consultants the company hired to review the incident and suggest corrective actions. After declining for five days in a row, front-month gas futures for January delivery on the New York Mercantile Exchange rose 25.4 cents, or 4.6%, to settle at $5.723 per million British thermal units (mmBtu).

On Tuesday, the contract closed at its lowest since Oct. 27 for a second day in a row. Analysts at energy consulting firm EBW Analytics said if "key technical support ... near $5.38-5.40 (per mmBtu)" holds it could "trigger a notable near-term rebound as shorts take profits." Prices fell as low as $5.38 before soaring on Wednesday. U.S. gas futures are up about 54% so far this year as much higher global prices feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia's invasion of Ukraine. Gas was trading at $46 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $33 at the Japan Korea Marker (JKM) in Asia.

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U.S. gas futures lag global prices because the United States is the world's top producer with all the fuel it needs for domestic use, while capacity constraints and the Freeport outage have prevented the country from exporting more LNG. Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 99.6 bcfd so far in December, up from a monthly record of 99.5 bcfd in November.

With colder weather coming, Refinitiv projected average U.S. gas demand, including exports, would rise from 118.0 bcfd this week to 121.3 bcfd next week. Those forecasts were higher than Refinitiv's outlook on Tuesday. The average amount of gas flowing to U.S. LNG export plants held around 11.8 bcfd so far in December, the same as in November. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.

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