U.S. natgas jump 7% with Freeport LNG seen back in October

U.S. natural gas futures jumped 7% on Wednesday after Freeport LNG said its liquefied natural gas (LNG) export plant in Texas remains on track to return to service in early October.

Freeport said in a release that it entered into a consent agreement with the U.S. Pipeline Hazardous Materials Safety Administration (PHMSA) that should allow the plant "to resume initial operations in early October."

The shutdown of Freeport on June 8 left a lot of gas in the United States for utilities to inject into what are extremely low stockpiles.

Freeport is the second-biggest LNG export plant in the United States. It was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut. Freeport has long estimated the facility will return to at least partial service in October. Some analysts, however, have projected the outage would last longer.

In addition to the Freeport news, prices were also up on forecasts for hotter weather and more air conditioning demand next week than previously expected.

So far this summer, electric companies have burned record amounts of gas to meet soaring power use to keep air conditioners humming. Power demand in Texas was expected to break records again this week.

Gas-fired plants have provided more than 40% of U.S. power in recent weeks, according to federal energy data, even though gas futures soared about 52% in July. That is partly because coal prices (CQNYMC1) keep hitting record highs, making it uneconomical for some generators to use their coal-fired plants.

Front-month gas futures NG1! rose 56.0 cents, or 7.3%, to settle at $8.266 per million British thermal units (mmBtu).

In what has already been an extremely volatile year, that increase was only the biggest one-day percentage gain since July 20 when the contract rose about 10%. On Tuesday, the front-month fell about 7%.

So far this year, the front-month was up about 118% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since the amount of gas from Russia to Europe has dropped following Moscow's invasion of Ukraine on Feb. 24.

Gas was trading around $59 per mmBtu in Europe (TRNLTTFMc1) and $46 in Asia (JKMc1).

TOP EXPORTER

The United States became the world's top LNG exporter during the first half of 2022. But no matter how high global gas prices rise, the United States cannot export any more LNG because its plants were already operating at full capacity.

Russian gas exports on the three main lines into Germany - Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route - held at 2.5 bcfd on Tuesday, the same as Monday.

That compares with an average of 2.8 bcfd in July and 10.4 bcfd in August 2021.

U.S. gas futures lag far behind global prices because the United States is the world's top producer, with all the fuel it needs for domestic use, while capacity constraints limit LNG exports.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 97.5 bcfd so far in August from a record 96.7 bcfd in July.

On a daily basis, however, output was on track to drop 1.9 bcfd to a preliminary 96.4 bcfd on Wednesday after soaring 2.4 bcfd to a daily record high of 98.4 bcfd on Friday. Preliminary data is often changed later in the day.

With hotter weather expected, Refinitiv projected that average U.S. gas demand including exports would rise from 99.5 bcfd this week to 101.3 bcfd next week. The forecast for next week was higher than Refinitiv's outlook on Tuesday.

The average amount of gas flowing to U.S. LNG export plants rose to 11.0 bcfd so far in August from 10.9 bcfd in July. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.