U.S. natural gas prices fall 3% on mild weather, lower winter prices

(Reuters) - U.S. natural gas futures fell about 3% on Monday on forecasts for lower demand due to milder weather over the next two weeks and longer over the upcoming winter.

Prices fell despite a reduction in output, record exports to Mexico and a rise in the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants even though some plants were reduced for maintenance.

Front-month gas futures for November delivery on the New York Mercantile Exchange fell 8.9 cents, or 3.0%, to settle at $2.840 per million British thermal units (mmBtu).

"The increasing likelihood of a mild El Nino winter ... (is) encouraging speculation to the downside not just for the winter months but also beyond," analysts at energy consulting firm Gelber and Associates said in a note.

The premium of March 2024 futures over April 2024 <NGH24-J24>, which the industry calls the widow maker, fell to a record low of 21 cents per mmBtu, according to data from financial firm LSEG going back to 2018.

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, including the Amaranth hedge fund, which lost more than $6 billion in 2006.

The industry uses the March-April spread to bet on winter weather forecasts since March is the last month of the winter heating season when utilities pull gas out of storage. A smaller March premium generally means the industry expects an easy or mild winter.

Gelber noted a mild winter would reduce the amount of gas utilities pull from storage during the heating season, which would leave more fuel in the caverns at the start of the next year's injection season in April and weigh on prices in 2024.

Supply and demand

LSEG said average gas output in the lower 48 U.S. states slid to 102.9 billion cubic feet per day (bcfd) in September from a record 103.1 bcfd in August.

On a daily basis, output fell by about 2.0 bcfd over the past four days to a preliminary three-month low of 101.2 bcfd on Monday. Energy traders have noted that preliminary data is often revised later in the day.

Meteorologists forecast the weather in the lower 48 states would turn from warmer than normal through Oct. 6 to mostly near normal from Oct. 7-17.

With milder weather coming, LSEG forecast U.S. gas demand, including exports, would slide from 94.8 bcfd this week to 94.5 bcfd next week. The forecast for next week was lower than LSEG's outlook on Friday.

Pipeline exports to Mexico rose to a record 7.2 bcfd in September, up from the prior all-time high of 7.1 bcfd in August, according to LSEG data.

Analysts expect exports to Mexico to rise even higher in coming months once New Fortress Energy's plant in Altamira starts pulling in U.S. gas to turn into liquefied natural gas (LNG) for export.

Gas flows to the seven big U.S. LNG export plants rose to an average of 12.6 bcfd in September, up from 12.3 bcfd in August.

That compares with a monthly record of 14.0 bcfd in April.

That increase in LNG feedgas happened despite ongoing maintenance at Berkshire Hathaway Energy's 0.8-bcfd Cove Point in Maryland and reductions at other plants, including Cheniere Energy's Sabine Pass in Louisiana and Corpus Christi in Texas.

Cove Point shut for about two weeks of maintenance around Sept. 20.

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