US natural gas futures fell about 3% on Monday along with a 10% drop in oil prices on worries that an economic slowdown caused by the coronavirus will slam demand for energy.
Gas prices slid despite forecasts for cooler weather and more heating demand in the United States over the next two weeks than previously expected.
"So far, the focus has been on a reduction of foreign demand for US industrial exports such as LNG (liquefied natural gas), chemicals, and other plastic products," Daniel Myers, market analyst at Gelber & Associates in Houston, said in a report, noting "More direct impacts could be seen when closures and cancellations take their toll on power generation and other demand within the United States."
Myers said grid operators are preparing for a scenario in which every day looks like a weekend as businesses shutter and more people work from home.
Front-month gas futures for April delivery on the New York Mercantile Exchange fell 5.4 cents, or 2.9%, to settle at $1.815 per million British thermal units (mmBtu).
Even before the coronavirus started to spread, gas prices were already near their lowest in four years because near-record production and mild weather enabled utilities to leave more gas in storage, making winter fuel shortages and price spikes unlikely. Gas futures were trading about 38% below an eight-month high of $2.905 per mmBtu hit in early November.
Oil prices fell below $30 a barrel on Monday as the coronavirus outbreak worsened over the weekend, exacerbating fears that government lockdowns to contain the spread of the disease would spark a global recession.
Data provider Refinitiv projected gas demand in the US Lower 48 states, including exports, would jump from an average of 103.2 billion cubic feet per day (bcfd) this week to 108.7 bcfd next week. That is much higher than Refinitiv's forecasts on Friday of 104.3 bcfd this week and 103.8 bcfd next week.
The amount of gas flowing to US liquefied natural gas (LNG) export plants was on track to fall to 7.7 bcfd on Monday from 8.4 bcfd on Sunday due mostly to declines at Cheniere Energy Inc's Sabine Pass export terminal in Louisiana, according to data from Refinitiv. Analysts said the declines at Sabine Pass were likely related to fog.
Gas production in the Lower 48 states held at 94.5 bcfd on Monday, the same as Sunday.
Analysts said they expect gas production to decline over the next year as energy firms slash spending on new oil drilling due to the collapse in crude prices since much of the growth in gas output in recent years has come from gas associated with oil production in shale basins like the Permian in West Texas.
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