US natgas prices drop 5% to fresh 3-1/2-year low on mild forecasts

By Scott DiSavino Feb 14 (Reuters) - U.S. natural gas futures dropped about 5% on Wednesday to a fresh 3-1/2-year low on near-record output, ample amounts of fuel in storage and forecasts for warmer weather and less heating demand next week than previously expected. Traders also noted that gas flows to U.S. liquefied natural gas (LNG) export plants should remain reduced so long as a liquefaction unit at Freeport LNG's facility in Texas stays shut. The combination of near-record production and mostly warmer-than-usual weather and low heating demand so far this winter, other than an Arctic freeze in mid-January, has allowed utilities to leave more gas in storage. Analysts forecast inventories were currently about 15% above normal levels for this time of year. Energy traders said low prices usually encourage power generators to burn more gas instead of coal and producers to cut back on gas drilling. That already may be happening. U.S. energy firm Comstock Resources, a big gas producer, said it would reduce the number of rigs in operation from seven to five due to low gas prices and also suspend its dividend until gas prices improve. But even if some energy firms reduce gas drilling, gas output could still rise because oil prices are high enough to encourage producers to seek more oil in shale basins like the Permian in Texas and New Mexico and Bakken in North Dakota. A lot of associated gas also comes out of the ground with oil in those shale basins. Front-month gas futures for March delivery on the New York Mercantile Exchange fell 8.0 cents, or 4.7%, to settle at $1.609 per million British thermal units (mmBtu), their lowest close since June 2020 during the height of demand destruction from the COVID pandemic. That put the contract down about 36% so far this year after dropping 23% over the past seven days of price declines. Analysts at energy consulting firm EBW Analytics Group said prices could start to increase soon. "Strong technical support near $1.61/MMBtu, a substantial speculator short position, a technically oversold front-month contract, the impending return of Freeport LNG's one train outage, lower production scrapes, and chances for producer earnings season to contain bullish surprises could catalyze a relief rally at any point," EBW said in a note to customers. SUPPLY AND DEMAND Financial company LSEG said gas output in the U.S. Lower 48 states rose to an average of 105.7 billion cubic feet per day (bcfd) so far in February, up from 102.1 bcfd in January, but still short of the monthly record high of 106.3 bcfd in December. On a daily basis, however, output was on track to drop by about 2.1 bcfd from Feb. 10-14 to a preliminary two-week low of 104.4 bcfd on Feb. 14. Meteorologists projected the weather in the Lower 48 states would turn from warmer than normal now to colder than normal on Saturday and Sunday, Feb. 17-18, before returning to warmer-than-normal levels from Feb. 19-29. With seasonally colder weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 124.0 bcfd this week to 129.0 bcfd next week. The forecast for next week was lower than LSEG's outlook on Monday. Gas flows to the seven big U.S. LNG export plants slid to an average of 13.6 bcfd so far in February, down from 13.9 bcfd in January and a monthly record of 14.7 bcfd in December. Analysts do not expect U.S. LNG feedgas to return to record levels until Freeport LNG is back at full power, which could occur in mid- to late February. Week ended Week ended Year ago Five-year Feb 9 Feb 2 Feb 9 average Forecast Actual Feb 9 U.S. weekly natgas storage change (bcf): -68 -75 -117 -149 U.S. total natgas in storage (bcf): 2,516 2,584 2,280 2,187 U.S. total storage versus 5-year average 15.0% 10.6% Global Gas Benchmark Futures ($ per mmBtu) Current Day Prior Day This Month Prior Year Five Year Last Year Average Average 2023 (2018-2022) Henry Hub 1.67 1.69 2.44 2.66 3.60 Title Transfer Facility (TTF) 7.93 7.99 16.52 13.04 14.39 Japan Korea Marker (JKM) 9.41 9.44 16.87 14.39 14.31 LSEG 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 332 351 337 389 380 U.S. GFS CDDs 3 3 14 7 6 U.S. GFS TDDs 336 354 351 396 386 LSEG U.S. Weekly GFS Supply and Demand Forecasts Prior Week Current Next Week This Week Five-Year Week Last Year (2019-2023) Average For Month U.S. Supply (bcfd) U.S. Lower 48 Dry Production 105.8 105.8 106.0 102.0 92.4 U.S. Imports from Canada 9.2 8.8 9.4 8.7 9.1 U.S. LNG Imports 0.0 0.0 0.0 0.0 0.2 Total U.S. Supply 115.0 114.6 115.4 110.7 101.7 U.S. Demand (bcfd) U.S. Exports to Canada 3.6 3.5 3.5 3.1 2.7 U.S. Exports to Mexico 6.2 6.4 6.3 5.1 5.2 U.S. LNG Exports 13.3 13.8 13.6 13.2 8.4 U.S. Commercial 13.8 13.8 14.5 14.0 16.3 U.S. Residential 22.3 22.2 23.5 22.9 27.6 U.S. Power Plant 31.0 32.5 32.3 29.5 29.3 U.S. Industrial 24.4 24.5 24.8 24.4 25.4 U.S. Plant Fuel 5.2 5.2 5.2 5.2 5.3 U.S. Pipe Distribution 2.6 2.7 2.7 2.6 2.7 U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1 Total U.S. Consumption 99.4 101.0 103.2 98.7 106.7 Total U.S. Demand 122.5 124.7 126.7 120.1 123.0 U.S. Northwest River Forecast Center (NWRFC) at The Dalles Dam Current Day Prior Day 2023 2022 2021 % of Normal % of Normal % of Normal % of Normal % of Normal Forecast Forecast Actual Actual Actual Apr-Sep 78 79 83 107 81 Jan-Jul 80 81 77 102 79 Oct-Sep 81 81 76 103 81 U.S. weekly power generation percent by fuel - EIA Week ended Week ended Week ended Week ended Week ended Feb 16 Feb 9 Feb 2 Jan 26 Jan 19 Wind 10 14 9 7 10 Solar 3 3 3 2 2 Hydro 7 7 7 6 6 Other 1 1 2 2 2 Petroleum 0 0 0 0 0 Natural Gas 40 38 40 43 39 Coal 15 16 18 22 23 Nuclear 22 21 20 19 17 SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu) Hub Current Day Prior Day Henry Hub 1.61 1.76 Transco Z6 New York 2.08 1.82 PG&E Citygate 3.14 3.26 Eastern Gas (old Dominion South) 1.49 1.39 Chicago Citygate 1.58 1.70 Algonquin Citygate 5.76 6.06 SoCal Citygate 2.89 3.01 Waha Hub 1.19 0.98 AECO 1.23 1.29 SNL U.S. Power Next-Day Prices ($ per megawatt-hour) Hub Current Day Prior Day New England 47.00 47.50 PJM West 28.50 31.25 Ercot North 10.50 16.50 Mid C 58.50 57.40 Palo Verde 28.00 30.75 SP-15 27.25 35.00 (Reporting by Scott DiSavino; editing by Diane Craft)