U.S. natural gas futures ease to 3-week low on record output and lower LNG exports

(Reuters) - U.S. natural gas futures eased about 1% to a fresh three-week low on Friday on output and after the amount of gas flowing to U.S. LNG export plants declined due to spring maintenance.

That price decline came despite forecasts for more gas demand this week and next than previously expected.

Front-month gas futures NGc1 for June delivery on the New York Mercantile Exchange fell 1.3 cents, or 0.6%, to $2.088 per million British thermal units (mmBtu) at 9:00 a.m. EDT (1300 GMT), putting the contract on track for its lowest close since April 13 for a second day in a row.

That puts the front-month down for a fifth day in a row for the first time since December 2022.

For the week, the contract was down about 13%, which would be its first weekly decline in four weeks.

In the spot market, mild weather and weak demand in the U.S. West pressured next-day power and gas prices for Friday to their lowest levels in years.

Next-day gas at the Southern California Border NG-SCL-CGT-SNL fell to its lowest since July 2020, while next-day power sunk to its lowest since May 2020 at the SP-15 hub EL-PK-SP15-SNL in Southern California and the Palo Verde hub EL-PK-PLVD-SNL in Arizona.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 101.7 billion cubic feet per day (bcfd) so far in May, up from a record 101.4 bcfd in April.

Meteorologists projected the weather would remain mostly warmer than normal from May 5-16, with cooling degree days (CDD) exceeding heating degree days (HDD) over the next two weeks for the first time this year. The weather is expected to return to near-normal levels from May 17-20.

HDDs measure the number of degrees a day's average temperature is below 65 degrees Fahrenheit (18 degrees Celsius) to estimate demand to heat homes and businesses, while CDDs measure the number of degrees a day's average temperature is above 65 F to estimate demand to cool homes and businesses.

With the weather turning warmer, Refinitiv forecast U.S. gas demand, including exports, would slide from 96.3 bcfd this week to 92.1 bcfd next week and 91.7 bcfd in two weeks. The forecasts for this week and next were higher than Refinitiv's outlook on Thursday.

Gas flows to the seven big U.S. LNG export plants slid to an average of 13.3 bcfd so far in May, down from a record 14.0 bcfd in April. The decline was due mostly to reductions at Cameron LNG's terminal in Louisiana, Cheniere Energy Inc's LNG.A Sabine Pass in Louisiana and Freeport LNG's terminal in Texas.

Last month's record flows were higher than the 13.8 bcfd of gas the seven plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG.

Global gas price collapse

Some analysts have questioned whether this year's gas price collapse in Europe and Asia could force U.S. exporters to cancel LNG cargoes this summer after mostly mild weather over the winter left massive amounts of gas in storage. In 2020, at least 175 LNG shipments were canceled due to oversupply and weak demand.

But for now, most analysts say energy security concerns following Russia's invasion of Ukraine in February 2022 should keep global gas prices high enough to sustain record U.S. LNG exports in 2023.

Gas was trading at a 21-month low of around $12 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe TRNLTTFMc1 and a 22-month low of $11 at the Japan Korea Marker (JKM) in Asia JKMc1. NG/EU

Even though TTF gas prices were down about 51% and JKM was down about 62% so far this year, traders said those prices were high enough to feed demand for U.S. LNG exports.

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