US natgas prices drop 4% to 1-week low on rising output, lower flows to LNG plants

By Scott DiSavino

U.S. natural gas futures fell about 4% to a one-week low on Monday on an increase in output in recent days and a drop in the amount of gas flowing to liquefied natural gas export plants due to ongoing spring maintenance at several facilities.

Gas futures NG1! for July delivery on the New York Mercantile Exchange fell 14.9 cents, or 3.9%, to settle at $3.635 per million British thermal units, their lowest close since May 30.

Fast-growing volumes of gas in storage have also helped keep futures prices in check in recent weeks.

Gas stockpiles are about 5% above normal for this time of year and analysts forecast energy firms made a record-tying, seventh triple-digit injection during the week ended June 6.

The last time energy firms added 100 bcf or more of gas into storage for seven weeks in a row was in June 2014, according to federal energy data going back to 2010.

Another factor keeping pressure on futures prices over the past month or so has been low cash prices.

Next-day gas prices at the U.S. Henry Hub benchmark (NG-W-HH-SNL) in Louisiana were trading around $2.68 per mmBtu, a six-month low, keeping spot contracts below front-month futures every day since late April.

Analysts have said that so long as spot prices remain far enough below front-month futures NG1! to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the Lower 48 U.S. states has held at 105.2 billion cubic feet per day so far in June, the same as in May. That is down from a monthly record high of 106.3 bcfd in March due primarily to normal spring maintenance. Output so far this month is higher than LSEG projected on Friday when the average was just 104.8 bcfd in June.

Energy firms usually work on gas pipes and other equipment in the spring and autumn when demand for the fuel for heating and cooling is low.

Meteorologists project weather across the Lower 48 states will remain mostly warmer than normal through June 24.

LSEG forecast average gas demand in the Lower 48, including exports, would rise from 98.6 bcfd this week to 100.7 bcfd next week. The forecast for this week was higher than LSEG's outlook on Friday.

The average amount of gas flowing to the eight big U.S. LNG export plants fell to 13.8 bcfd so far in June, down from 15.0 bcfd in May and a monthly record high of 16.0 bcfd in April.

Traders said LNG feedgas reductions since April were primarily due to spring maintenance, including work at Cameron LNG's 2.0-bcfd plant in Louisiana and Cheniere Energy's LNG 4.5-bcfd Sabine Pass in Louisiana and 3.9-bcfd Corpus Christi in Texas, and short, unplanned unit outages at Freeport LNG's 2.1-bcfd plant in Texas on May 6, May 23, May 28 and June 3.

Energy traders have noted that LNG maintenance would likely continue through mid-June at Cameron and late-June at Sabine.