U.S. natural gas futures dropped about 4% to a two-month low on Thursday on a bigger than expected storage build, record output and forecasts for milder weather through early October that should allow utilities to keep injecting more gas than usual into storage in coming weeks.
The U.S. Energy Information Administration (EIA) said utilities added 103 billion cubic feet (bcf) of gas to storage during the week ended Sept. 16.
Traders said that build was bigger than usual as mild weather and an increase in wind power last week kept the amount of gas power generators burned low. That was also bigger than the 93-bcf build analysts forecast in a Reuters poll and compares with an increase of 77 bcf in the same week last year and a five-year (2017-2021) average increase of 81 bcf.
Gas prices were also weighed down by expectations demand for the fuel would decline in October when the Cove Point liquefied natural gas (LNG) plant in Maryland shuts for a couple weeks of maintenance.
U.S. gas use has already been reduced for months by the ongoing outage at the Freeport LNG export plant in Texas which has left more gas in the United States for utilities to inject into stockpiles for next winter. Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. Freeport LNG expects the facility to return to at least partial service in early to mid-November.
Removing a threat that U.S. LNG exports could be reduced later this year, however, Cheniere Energy Inc said it will repair and replace equipment at its Sabine Pass LNG terminal in Louisiana terminal after tests showed it exceeded newly-imposed hazardous emissions limits. Cheniere said the work will have no material impact on operations.
In Puerto Rico, meanwhile, an estimated 1 million homes and businesses remain without power after Hurricane Fiona hit on Sunday.
The U.S. National Hurricane Center warned that a tropical cyclone would likely form in the Caribbean Sea over the next five days. Front-month gas futures fell 28.6 cents, or 3.7%, to $7.493 per million British thermal units (mmBtu) by 10:38 a.m. EDT (1438 GMT), putting the contract on track for its lowest close since July 19. Despite recent declines, gas futures were still up about 102% so far this year as higher prices in Europe and Asia keep demand for U.S. LNG exports strong.
Global gas prices have soared due to supply disruptions and sanctions linked to Russia's Feb. 24 invasion of Ukraine. Gas was trading around $55 per mmBtu in Europe and $39 in Asia. That was a 4% increase in European prices. Russian gas exports via the three main lines into Germany - Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route - have averaged just 1.3 bcfd so far in September, down from 2.5 bcfd in August and 10.8 bcfd in September 2021.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 98.8 bcfd so far in September from a record 98.0 bcfd in August. With cooler autumn weather coming, Refinitiv projected average U.S. gas demand, including exports, would slip from 92.6 bcfd this week to 90.7 bcfd next week.
Those forecasts were higher than Refinitiv's outlook on Wednesday. The average amount of gas flowing to U.S. LNG export plants rose to 11.3 bcfd so far in September from 11.0 bcfd in August. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.
(Reporting by Scott DiSavino; Editing by Kirsten Donovan)