US natgas prices fall 5% to 2-week low on mild forecasts, widow maker in contango

U.S. natural gas futures fell about 5% to a two-week low on Tuesday on rising output and forecasts for milder weather and less heating demand next week than previously expected.

Front-month gas futures NG1! for January delivery on the New York Mercantile Exchange fell 17.1 cents, or 5.3%, to settle at $3.042 per million British thermal units (mmBtu), their lowest close since Nov. 19.

Looking ahead, futures for April 2025 traded higher than March 2025 (NGH25-J25) for the first time, an unusual step that some analysts said signals the market was already giving up on expectations of much higher prices this winter.

March is the last month of the winter storage withdrawal season and April is the first month of the summer storage injection season. Since gas is primarily a winter heating fuel, traders have said summer prices should not trade above winter.

The industry calls the March-April spread the "widow maker" because rapid price moves on changing weather forecasts have forced some speculators out of business, including the Amaranth hedge fund, which lost more than $6 billion in 2006.

In the spot market, meanwhile, the coming of wintry weather across parts of the U.S. caused gas prices to rise to their highest since January in several regions, including the Waha hub (NG-WAH-WTX-SNL) in West Texas, Algonquin (NG-CG-BS-SNL) in New England, New York (NG-CG-NY-SNL) and at the Southern California Border (NG-SCL-CGT-SNL).

Next-day gas prices at the Algonquin jumped to $14.29 per mmBtu, boosting spot power prices to a four-month high of $122 per megawatt hour in the pipeline-constrained New England region.

Power and gas prices usually spike in New England when the winter weather turns cold because there is not enough gas pipeline capacity into the six-state region to both fuel power plants and heat homes and businesses. That forces several generators to switch to more expensive oil and liquefied natural gas (LNG) to fuel power plants.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the Lower 48 U.S. states rose to 101.9 billion cubic feet per day (bcfd) so far in December, up from 101.5 bcfd in November. That compares with a record 105.3 bcfd in December 2023.

Analysts expect producers to boost gas output in 2025 as rising demand from LNG export plants increases prices after drillers cut production in 2024 for the first time since the COVID-19 pandemic reduced usage of the fuel.

Annual average gas prices at the Henry Hub will soar by over 40% in 2025 after dropping to a four-year low in 2024, according to analysts forecasts.

Meteorologists projected the weather in the Lower 48 will turn from mostly colder than normal from now through Dec. 7 to mostly warmer than normal from Dec. 8-18.

With less cold weather coming, LSEG forecast average gas demand in the Lower 48, including exports, would drop from 135.9 bcfd this week to 127.7 bcfd next week.

The U.S. became the world's biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar, as much higher global prices feed demand for more exports due in part to supply disruptions and sanctions linked to Russia's invasion of Ukraine in February 2022.

Gas prices traded at a one-year high of around $15 per mmBtu at the Dutch Title Transfer Facility benchmark in Europe (TRNLTTFMc1) and at an 11-month high of $15 at the Japan-Korea Marker (JKMc1) benchmark in Asia on worries about low supplies from Russia and colder weather in Europe.