U.S. natural gas prices drop 8% on contract expiry, Freeport LNG unit outage

(Reuters) - U.S. natural gas futures plunged about 8% in light trade on Monday ahead of the expiration of the February contract on forecasts that demand for the fuel for heating and export would remain low in coming weeks with mild weather and a unit outage at the Freeport LNG export plant in Texas.

Analysts noted gas futures were on track to drop to an nine-month low on Tuesday when March becomes the front-month because the March contract was trading well below February.

The Freeport outage would leave more gas in the country at the same time U.S. output is rising as wells return to service after freezing during extreme cold weather in mid-January.

The Arctic freeze boosted gas demand to a daily record high and cut both U.S. gas output and liquefied natural gas (LNG) feedgas to one-year lows.

On its last day as the front-month, gas futures <NGc1> for February delivery on the New York Mercantile Exchange fell 22.2 cents, or 8.2%, to settle at $2.490 per million British thermal units (mmBtu).

Futures for March <NGH24>, which will soon be the front-month, fell about 6% to $2.05 per mmBtu, which would be the lowest close for the front-month since mid-April 2023.

SUPPLY AND DEMAND

Financial company LSEG said gas output in the Lower 48 states fell to an average of 103.6 billion cubic feet per day (bcfd) so far in January, down from a monthly record high of 108.0 bcfd in December.

On a daily basis, U.S. gas output was on track to jump by 15.8 bcfd from Jan. 17-29 to a preliminary two-week high of 107.0 bcfd on Sunday.

That was almost enough to replace the 17.2 bcfd drop in output from Jan. 8-16 to a 12-month low of 90.5 bcfd on Jan. 16, which was due primarily to freeze-offs and other cold weather events.

Meteorologists projected temperatures in the Lower 48 states would remain warmer than normal from now through at least Feb. 12. The forecasts for the week of Feb. 4, however, were slightly cooler than the outlook for the week of Jan. 28.

With slightly cooler weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 124.9 bcfd this week to 129.1 bcfd next week. The forecast for next week was higher than LSEG's outlook on Friday.

Gas flows to the seven big U.S. LNG export plants fell to an average of 13.8 bcfd so far in January, down from a monthly record of 14.7 bcfd in December.

Analysts said U.S. LNG feedgas would likely not return to record levels until U.S. energy firm Freeport LNG's export plant in Texas returns to full power likely in mid- to late-February.

The U.S. became the world's biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar, as much higher global prices fed demand for more exports due in part to supply disruptions and sanctions linked to Russia's war in Ukraine.

Global gas was trading near a five-month low of $9 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe <TRNLTTFMc1> and at a seven-month low of $9 at the Japan Korea Marker (JKM) benchmark in Asia <JKMc1>. [NG/EU]

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