U.S. natural gas slips to fresh 18-mth low on expected Freeport LNG delay

(Reuters) - U.S. natural gas futures eased about 1% to a fresh 18-month low on Thursday as another LNG tanker turned away from Freeport LNG's export plant in Texas, a further sign that the plant's restart will likely not happen in January.

That price decline flew in the face of a storage report showing a bigger-than-expected draw last week and forecasts for colder weather and more heating demand next week than previously expected.

The market cares about the Freeport plant because prices will likely jump once it returns to service as demand for gas rises. The facility, which shut due to a fire on June 8, can pull in around 2.1 B cubic feet per day (bcfd) of gas and turn it into LNG when operating at full power.

That is about 2% of U.S. daily production. The U.S. Energy Information Administration (EIA) said utilities pulled 82 billion cubic feet (bcf) of gas from storage during the week ended Jan. 13.

That was more than the 71-bcf decline analysts forecast in a Reuters poll and compared with a decrease of 156 bcf in the same week last year and a five-year (2018-2022) average decline of 203 bcf. Analysts said utilities pulled less gas from storage than usual because the weather last week was warmer than normal, keeping heating demand low.

Last week's decrease cut stockpiles to 2.820 trillion cubic feet (tcf), or 1.2% above the five-year average of 2.786 tcf for this time of year. Front-month gas futures for February delivery fell 3.6 cents, or 1.1%, to settle at $3.275 per MM British thermal units (mmBtu), their lowest close since June 22, 2021 for a second day in a row.

That lack of price movement kept the front-month in technically oversold territory with a relative strength index (RSI) below 30 for a second day in a row and the 13th time in 15 days. In a sign that a growing number of market participants have given up hope that extreme cold will bring massive price spikes later this winter, the premium on March futures over April, which the industry calls the widow maker, fell to a record low of one cent per mmBtu.

That puts the futures in danger of falling into contango, with future prices higher than earlier contracts. Analysts have said that March, the last month of winter when demand for heating fuel is high, should never trade below April, the first month of spring when demand is lower.

The industry calls the March-April spread the "widow maker" because rapid price moves resulting from changing weather forecasts have forced some speculators out of business. Among them was the Amaranth hedge fund, which lost more than $6 B on gas futures in 2006. With colder weather coming, Refinitiv forecast U.S. gas demand, including exports, would jump from 121.7 bcfd this week to 130.6 bcfd next week.

The forecast for next week was higher than Refinitiv's outlook on Wednesday. Traders said the biggest market uncertainty remains when the Freeport plant will return. Although Freeport says the plant is still on track to restart in the second half of January pending regulatory approvals, that restart timeline has already been delayed many times from October to November to December and most recently to January.

Even when the company was saying the plant could restart in 2022, many analysts said it would likely take Freeport until the first or second quarter of 2023 to get the plant ready due to the large amount of work needed to satisfy federal regulators, including training staff in new safety procedures.

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