Natural Gas- Near-record production and a well-supplied market outweigh potential storm risks, pushing futures lower.
U.S. natural gas futures fell nearly 3% on Tuesday, retreating from a recent two-month high as robust domestic output and comfortable storage levels overshadowed a decline in LNG exports and forecasts for milder weather.
Price Movement
Front-month natural gas futures for October delivery (NG1!) on the New York Mercantile Exchange were down 8.5 cents, or 2.8%, at $2.912 per million British thermal units (mmBtu) by late morning. This pullback follows a rally that saw the contract close at its highest level since July 8 on Friday. U.S. markets were closed Monday for the Labor Day holiday.
Key Market Drivers
The price decline was driven by several fundamental factors tilting the market toward oversupply:
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Robust Production: Despite a slight dip, output remains exceptionally high. Financial firm LSEG reported average gas output in the Lower 48 states fell to 107.6 billion cubic feet per day (bcfd) so far in September from a record 108.3 bcfd in August.
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Ample Storage: Record production has enabled energy companies to inject more gas into storage than usual. Analysts note storage levels are roughly 5% above the seasonal norm and are expected to grow in the coming weeks.
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Softer Demand Forecast: LSEG projected average gas demand, including exports, would ease from 104.4 bcfd this week to 103.9 bcfd next week. The forecast for next week was lower than previously expected.
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Dip in LNG Exports: The average amount of gas flowing to major U.S. LNG export plants slipped to 15.6 bcfd in September from 15.8 bcfd in August. On a daily basis, feedgas was on track to drop to 15.6 bcfd on Tuesday due to decreases at several facilities, including Cheniere Energy’s Corpus Christi plant in Texas and the Cameron LNG plant in Louisiana.
Tropical Disturbance Watched
A potential counterweight to the bearish sentiment is a weather system in the Atlantic. The U.S. National Hurricane Center projected a disturbance has a 70% chance of strengthening into a tropical cyclone over the next week as it moves west toward the Caribbean. Storm developments that threaten production in the Gulf of Mexico can cause price volatility.
Despite the overall decline in LNG feedgas, flows to Venture Global LNG’s Plaquemines plant in Louisiana were on track to hit a record high of 3.3 bcfd on Tuesday.