U.S. natgas prices slide 2% on forecasts for milder weather, lower demand

(Reuters) - U.S. natural gas futures slid about 2% on forecasts for milder weather and less heating demand next week than previously expected and ample amounts of gas in storage.

The low amounts of gas flowing to liquefied natural gas (LNG) export plants due to ongoing work at Freeport LNG's export plant in Texas also weighed on prices.

On its first day as the front-month, gas futures <NGc1> for May delivery on the New York Mercantile Exchange were down 3.1 cents, or 1.7%, to $1.757 per million British thermal units (mmBtu) at 8:51 a.m. EDT (1251 GMT).

Even though that price was down from where the May contract closed on Tuesday, it was up about 11% from where the April contract closed when it was still the front-month. April closed at its lowest price since June 2020 on Tuesday.

On March 26, intraday gas prices fell to $1.481 per mmBtu, their lowest since June 2020 after a mild winter with record output allowed utilities to leave significantly more gas in storage than usual for this time of year. Analysts estimated current gas stockpiles were around 41% above normal levels. [EIA/GAS][NGAS/POLL]

Those low prices should boost U.S. gas use to a record high in 2024 but cut production for the first time since 2020 when the COVID-19 pandemic destroyed demand for the fuel, according to the U.S. Energy Information Administration's latest outlook.

Output was already down by around 3% over the past month as several energy firms, including EQT<EQT.N> and Chesapeake Energy<CHK.O>, delayed well completions and cut back on other drilling activities.

EQT is currently the biggest U.S. gas producer and Chesapeake will soon become the biggest producer after its merger with Southwestern Energy<SWN.N>.

The collapse of gas prices on Tuesday elevated the oil-to-gas ratio to its highest since April 2012, which should prompt energy firms to drill for more oil and less gas.

The oil-to-gas ratio, or the level at which oil trades compared with gas, jumped to 52-to-1 on Tuesday. On an energy equivalent basis, oil should only trade six times over gas.

SUPPLY AND DEMAND

Financial firm LSEG said gas output in the Lower 48 U.S. states has fallen to an average of 100.2 billion cubic feet per day (bcfd) so far in March, down from 104.1 bcfd in February. That compares with a monthly record high of 105.5 bcfd in December 2023.

On a daily basis, output was on track to drop by about 3.0 bcfd over the past three days to a preliminary two-month low of 97.6 bcfd on Wednesday, according to LSEG data. Analysts said that output decline was due in part to extreme cold in North Dakota and some Rocky Mountain states over the past few days that froze some oil and gas wells.

For a month or so, traders have said that low gas prices should allow more gas power plants to displace coal plants. Analysts at EBW Analytics Group, however, said U.S. coal prices could decline in the coming weeks because the collapse of the Francis Scott Key Bridge in Baltimore could limit coal exports and as U.S. power generators keep burning down their higher-than-usual coal inventories after a mild winter.

Baltimore is the second-biggest coal export port in the U.S.

Meteorologists projected weather across the Lower 48 would remain mostly warmer than normal through April 11.

With seasonally warmer weather coming, LSEG forecast gas demand in the Lower 48, including exports, would fall from 112.3 bcfd this week to 105.0 bcfd next week. The forecast for next week was lower than LSEG's outlook on Tuesday.

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