US natural gas futures fell 4% on Friday on forecasts for lower demand in mid-May due to milder weather and as businesses remain shut due to government lockdowns to stop the spread of the coronavirus.
Front-month gas futures for June delivery on the New York Mercantile Exchange fell 7.1 cents, or 3.7%, to settle at $1.823 per million British thermal units, their lowest close since April 28.
That kept front-month at the Henry Hub benchmark in Louisiana higher than the Title Transfer Facility (TTF) in the Netherlands. Earlier this week, Henry Hub traded higher than both the TTF and the Japan/Korea Marker (JKM) for the first time ever. TTF and JKM both fell to record lows over the past couple of weeks.
In addition, to the front-month, Henry Hub was trading higher than TTF in July and August. Analysts said those high US prices and low prices elsewhere would likely prompt buyers of US liquefied natural gas (LNG) to cancel more cargoes in coming months. In April, buyers canceled about 20 US cargoes that were due to be shipped in June.
For the week, the US front-month was down about 4% after rising about 8% last week.
Looking ahead, US gas futures for the balance of 2020 and calendar 2021 were trading higher than the front-month on expectations demand will jump once governments loosen coronavirus travel and work restrictions.
The US Energy Information Administration (EIA) projected gas production will fall to an annual average of 91.7 billion cubic feet per day (bcfd) in 2020 and 87.5 bcfd in 2021 from a record 92.2 bcfd in 2019 as low oil prices prompt energy firms cut spending on drilling. Those oil wells also produce a lot of gas.
Data provider Refinitiv said average gas output in the US Lower 48 states has fallen to 90.1 bcfd so far in May, down from an eight-month low of 92.8 bcfd in April and an all-time monthly high of 95.4 bcfd in November.
The EIA projected coronavirus lockdowns will cut US gas use - not including exports - to an average of 83.8 bcfd in 2020 and 81.2 bcfd in 2021 from a record 85.0 bcfd in 2019.
This is normally the mildest time of year when heating and cooling demand are lowest. But with the weather still cooler than normal, Refinitiv projected demand in the Lower 48 states, including exports, would rise from an average of 83.5 bcfd this week to 87.4 bcfd next week before falling to 82.7 bcfd when the weather turns milder and demand destruction from the coronavirus starts to show up in the data.
Refinitiv said US LNG exports have averaged 7.3 bcfd so far in May, down from a four-month low of 8.1 bcfd in April and an all-time high of 8.7 bcfd in February.