U.S. natgas futures drop 11% to 10-month low on warmer Jan forecasts

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U.S. natural gas futures collapsed about 11% to a 10-month low on Tuesday as

volatility continues into 2023 on forecasts for warmer-than-normal weather and lower heating demand in January

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than previously expected.

In 2022, U.S. gas futures had their most volatile year yet, with both implied and historic volatility at

record highs as soaring global gas prices fed demand for U.S. liquefied natural gas (LNG) exports due to supply

disruptions and sanctions linked to Russia’s war in Ukraine.

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Traders said the biggest uncertainty for the market remains when Freeport LNG will restart its liquefied

natural gas (LNG) export plant in Texas.

After several delays, Freeport expects the facility to return in the second half of January, pending

regulatory approvals.

Many analysts, however, have long said they did not expect the plant to return until the first quarter

because the company still has work to do to satisfy federal regulators.

Whenever Freeport returns, U.S. demand for gas will jump. The plant can turn about 2.1 bcfd of gas into LNG

for export, which is about 2% of U.S. daily production.

Freeport shut on June 8 after a pipe failure caused an explosion due to inadequate operating and testing

procedures, human error and fatigue, according to a report by consultants hired to review the incident and

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suggest action.

Several vessels, including Prism Diversity, Prism Courage, Prism Agility and Elisa Larus, were waiting in

the Gulf of Mexico to pick up LNG from Freeport. Some of those ships – Prism Diversity and Prism Courage – have

been there since early November.

Other ships were sailing toward the plant, including Corcovado LNG, which is expected to arrive in mid

January, and Kmarin Diamond and Wilforce in late January.

Front-month gas futures for February delivery fell 48.7 cents, or 10.9%, to settle at $3.988 per

million British thermal units (mmBtu), their lowest close since Feb. 11.

That was the contract’s fourth decline in a row and its biggest daily percentage drop since Dec. 19 when it

fell 11.4%.

It also keeps the contract in technically oversold territory with a relative strength index (RSI) below 30

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for a fourth day in a row for the first time since October.

In addition, the premium of futures for March over April , which the industry calls the widow

maker, fell to a record low as some in the market gave up hope that extreme cold would cause prices to spike

later this winter.

For the year, spot gas prices at the Henry Hub benchmark in Louisiana averaged $6.44 per

mmBtu in 2022, their highest since hitting a record high of $8.86 in 2008. That compares with $3.91 in 2021 and

a five-year (2017-2021) average of $2.93.

GLOBAL PRICES MUCH HIGHER

Gas was trading at $22 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $29

at the Japan Korea Marker (JKM) in Asia.

U.S. gas futures lag global prices because the United States is the world’s top producer with all the fuel

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it needs for domestic use, while capacity constraints and the Freeport outage have prevented the country from

exporting more LNG.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 97.9 bcfd so far in

January, up from 96.7 bcfd in December but still below the monthly record of 99.9 bcfd in November 2022.

Even though the weather is expected to remain warmer than normal through mid-January, Refinitiv projected

average U.S. gas demand, including exports, would jump from 109.7 bcfd this week to 121.1 bcfd next week as

temperatures ease ahead of what are usually the coldest weeks of the year.

Week ended Week ended Year ago Five-year

Dec 30 Dec 23 Dec 23 average

(Forecast) (Actual) Dec 23

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U.S. weekly natgas storage change (bcf): -220 -213 -125 -106

U.S. total natgas in storage (bcf): 2,892 3,112 3,245 3,197

U.S. total storage versus 5-year average -9.5% -2.7%

Global Gas Benchmark Futures ($ per mmBtu) Current Day Prior Day This Month Prior Year Five Year

Last Year Average Average

2022 (2018-2022)

Henry Hub 4.06 4.48 4.26 6.54 3.60

Title Transfer Facility (TTF) 23.35 23.21 28.25 40.50 14.39

Japan Korea Marker (JKM) 29.52 28.83 28.53 34.11 14.31

Refinitiv Heating (HDD), Cooling (CDD) and Total (TDD) Degree Days

Two-Week Total Forecast Current Day Prior Day Prior Year 10-Year 30-Year

Norm Norm

U.S. GFS HDDs 342 345 472 440 444

U.S. GFS CDDs 3 4 4 4 3

U.S. GFS TDDs 345 349 476 444 447

Refinitiv U.S. Weekly GFS Supply and Demand Forecasts

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Prior Week Current Week Next Week This Week Five-Year

Last Year Average For

Month

U.S. Supply (bcfd)

U.S. Lower 48 Dry Production 87.0 98.5 98.7 94.0 88.8

U.S. Imports from Canada 10.1 8.0 9.3 9.2 9.4

U.S. LNG Imports 0.0 0.0 0.0 0.1 0.4

Total U.S. Supply 97.0 106.5 108.0 103.3 98.6

U.S. Demand (bcfd)

U.S. Exports to Canada 1.5 3.4 3.4 2.5 2.8

U.S. Exports to Mexico 5.0 4.8 5.1 5.5 5.3

U.S. LNG Exports 10.7 11.4 11.7 12.0 7.2

U.S. Commercial 20.7 12.3 14.9 19.3 17.1

U.S. Residential 36.0 19.4 24.1 33.1 29.8

U.S. Power Plant 33.8 27.4 29.5 30.5 28.5

U.S. Industrial 26.8 23.6 24.8 26.2 25.6

U.S. Plant Fuel 4.3 4.9 4.9 4.9 4.9

U.S. Pipe Distribution 3.3 2.4 2.7 2.4 2.4

U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1

Total U.S. Consumption 125.0 90.2 101.0 116.5 108.4

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Total U.S. Demand 142.1 109.7 121.1 136.5 123.7

U.S. weekly power generation percent by fuel – EIA

Week ended Week ended Week ended Week ended Week ended

Jan 6 Dec 30 Dec 23 Dec 16 Dec 9

Wind 13 11 9 12 9

Solar 2 2 2 2 2

Hydro 7 6 6 6 6

Other 2 2 2 2 2

Petroleum 0 1 0 0 0

Natural Gas 33 35 37 37 39

Coal 19 23 24 20 20

Nuclear 24 19 19 20 21

SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu)

Hub Current Day Prior Day

Henry Hub 3.52 3.78

Transco Z6 New York 2.68 3.60

PG&E Citygate 16.54 16.12

Dominion South 2.27 3.00

Chicago Citygate 3.38 3.47

Algonquin Citygate 2.94 3.64

SoCal Citygate 18.57 14.96

Waha Hub 2.25 0.01

AECO 3.25 3.49

SNL U.S. Power Next-Day Prices ($ per megawatt-hour)

Hub Current Day Prior Day

New England 38.25 54.00

PJM West 32.25 43.25

Ercot North 15.00 29.50

Mid C 165.00 125.00

Palo Verde 116.00 120.00

SP-5 121.25 129.75

(Reporting by Scott DiSavino; editing by Barbara Lewis and Richard Chang)