U.S. natgas futures fall on projections for lower heating demand

U.S. natural gas futures dropped more than 1pc on Tuesday, as projections for milder weather tempered the outlook for heating demand, overshadowing record liquefied natural gas (LNG) exports.

On their first day as the front-month, gas futures for May delivery were down 3 cents, or 1.13pc, to settle at $2.623 per million British thermal units (mmBtu), giving up gains from earlier in the session.

Prices seem to be pressured by the "weather, or lack of it, at this time of the year.

There was a rally yesterday and there could be a give-back today as well," said Thomas Saal, senior vice president of energy at StoneX.

Gas futures for April delivery on the New York Mercantile Exchange settled up 1.1pc at $2.586 per mmBtu on Monday.

Going into April, injections will be a major factor, as levels of LNG exports, including to Mexico, will influence amounts, Saal added.

Refinitiv estimated 173 heating degree days (HDDs) over the next two weeks in the lower 48 U.S. states. The normal is 209 HDDs for this time of year.

HDDs measure the number of degrees a day's average temperature is below 65 degrees Fahrenheit (18 degrees Celsius).

The measure is used to estimate demand to heat homes and businesses.

On the flip side, the gains in the natgas market so far this week have been driven "largely on the merits of strong LNG export activity," Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a note.

Data provider Refinitiv projected average gas demand, including exports, would go up marginally to 97.6 bcfd this week from 97.5 bcfd in the prior week, before dropping to 92.2 bcfd in the next week as the weather becomes milder.

The amount of gas flowing to U.S. LNG export plants, meanwhile, averaged 10.8 bcfd so far in March.

That compares with a four-month low of 8.5 bcfd in February, when extreme cold cut power and gas supplies to the facilities, and puts feedgas on track to edge out the monthly record of 10.7 bcfd in December.

Buyers around the world continue to purchase near record amounts of U.S. gas because prices in Europe and Asia remain high enough to cover the cost of buying and transporting the U.S. fuel across the ocean.

Output in the Lower 48 U.S. states averaged 91.1 billion cubic feet per day (bcfd) so far in March, up sharply from a 28-month low of 86.5 bcfd in February, when extreme weather froze gas wells and pipes in Texas.

That, however, was still much lower than the record monthly high of 95.4 bcfd in November 2019.