NEW YORK: US natural gas futures plunged about 8% to an 18-month low on Wednesday on forecasts for less heating demand in late January than previously expected.
Adding to the price drop, a growing number of analysts have said they do not expect Freeport LNG’s export plant in Texas to restart until February or later even though the company has said repeatedly that the liquefied natural gas (LNG) plant was on track to exit its seven-month outage in the second half of January, pending regulatory approvals.
Whenever Freeport returns, demand for US gas will jump, which should cause prices to rise. The plant can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG, which is about 2% of US daily production.
Front-month gas futures for February delivery fell 27.5 cents, or 7.7%, to settle at $3.311 per million British thermal units (mmBtu), their lowest close since June 22, 2021.
That price drop pushed the contract back into technically oversold territory with a relative strength index (RSI) below 30 for the 12th time in 14 days.
It also continues the record volatility seen last year, with the contract now up or down over 5% on six of the 11 trading days in 2023.
With colder weather coming, Refinitiv forecast US gas demand, including exports, would jump from 121.4 bcfd this week to 128.7 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Tuesday.
However, some market participants gave up hope that extreme cold will bring massive price spikes later this winter and the premium on March futures over April, which the industry calls the widow maker, fell to a record low of 2 cents per mmBtu.
“The last contract on the winter strips (March) should never trade at a discount to the first month on the summer strip (April) ... but that is what is threatening,” Bob Yawger, director of energy futures at Mizuho, said last week.
The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks. It calls the spread the “widow maker” because rapid price moves resulting from changing weather forecasts have forced some speculators out of business. Among them was the Amaranth hedge fund, which lost more than $6 billion on gas futures in 2006.
Traders said the biggest market uncertainty remains when the Freeport plant will return after shutting due to a fire on June 8, 2022.
Gas started flowing to the Freeport plant on Jan. 14, according to data from Refinitiv, but was only being used to maintain the flare system, according to a source familiar with the plant.
Although Freeport LNG says the plant is still on track to restart in the second half of January, pending regulatory approvals, that restart timeline has been delayed many times from October to November to December and most recently to January.
Freeport has not yet filed a request with federal regulators to restart the plant, according to a source familiar with the company’s filings.
Even when the company was saying the plant could restart last year, many analysts said it would likely take Freeport until the first or second quarter of 2023 to get the plant ready due to the large amount of work needed to satisfy federal regulators, including training staff in new safety procedures.
Even though some vessels have turned away from Freeport in recent weeks, a few tankers, including Prism Diversity, Prism Courage and Prism Agility, were still waiting in the Gulf of Mexico to pick up LNG from the plant. Some have been there since early November.—Reuters
Copyright Business Recorder, 2023
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