UPDATE 2-U.S. natgas drops 4% to 20-month low ahead of expiration, milder forecasts

(Adds latest prices, Freeport approval to begin the restart process) Jan 26 (Reuters) - U.S. natural gas futures dropped 4% to a 20-month low on Thursday despite a big weekly storage draw, as forecasts called for milder weather and lower heating demand next week than previously expected. Futures tumbled as much as 10% but pared losses after federal regulators approved Freeport LNG's plan to start cooling down parts of its liquefied natural gas (LNG) export plant in Texas, feeding hopes the plant could return in weeks rather than months. The cooldown process is not the start of LNG production at Freeport. Several analysts have said LNG production will likely not happen until March or later. The February contract expires on Friday as the front-month on the New York Mercantile Exchange. Volatility often peaks near expiry because trading volumes are low. In 2022, gas prices soared by a record 46% on the day the February contract expired, then pluged 26% the next day when the March contract became the front-month. The U.S. Energy Information Administration (EIA) said U.S. utilities pulled 91 billion cubic feet (bcf) of gas from storage during the week ended Jan. 20, more than the 82-bcf decline analysts forecast in a Reuters poll. Analysts said last week's build was much smaller than average because the weather then was warmer than normal, keeping heating demand low. The market expects gas prices and demand to rise when operations resume at Freeport, the second-biggest U.S. LNG exporter, which shut after a fire in June 2022. The plant is capable of pulling in about 2.1 billion cubic feet per day (bcfd) of gas and turning it into LNG, about 2% of what U.S. gas producers pull from the ground. Small amounts of pipeline gas started flowing to Freeport on Thursday, according to Refinitiv data. A source familiar with the plant said Freeport was using the gas to maintain a flare system and fuel the turbine generator and heaters. On its second-to-last day as the front-month, gas futures for February delivery fell 12.3 cents, or 4.0%, to settle at $2.944 per million British thermal units (mmBtu), their lowest close since May 2021. The March contract, which will soon be the front-month, was down about 10 cents at $2.82 per mmBtu. Recent increases in crude futures to a nine-week high boosted oil's premium over gas to its highest since January 2020. Over recent years that premium has prompted U.S. energy firms to focus drilling activity on finding more oil instead of gas. The oil-to-gas ratio, or level at which oil trades compared with gas, jumped to 29-to-1 on Thursday. Crude's average premium over gas was 15 times gas in 2022 and the five-year average (2018-2022) is 20 times. On an energy equivalent basis, oil should trade only six times over gas. Week ended Week ended Year ago Five-year Jan 20 Jan 13 Jan 20 average (Actual) (Actual) Jan 20 U.S. weekly natgas storage change (bcf): -91 -82 -217 -185 U.S. total natgas in storage (bcf): 2,729 2,820 2,622 2,601 U.S. total storage versus 5-year average +4.9 +1.2% Global Gas Benchmark Futures ($ per mmBtu) Current Day Prior Day This Month Prior Year Five Year Last Year Average Average 2022 (2018-2022) Henry Hub 2.86 3.07 4.26 6.54 3.60 Title Transfer Facility (TTF) 17.92 17.85 28.25 40.50 14.39 Japan Korea Marker (JKM) 20.94 22.13 28.53 34.11 14.31 Refinitiv Heating (HDD), Cooling (CDD) and Total (TDD) Degree Days Two-Week Total Forecast Current Day Prior Day Prior Year 10-Year 30-Year Norm Norm U.S. GFS HDDs 448 477 508 430 431 U.S. GFS CDDs 4 4 2 4 4 U.S. GFS TDDs 452 481 510 434 435 Refinitiv U.S. Weekly GFS Supply and Demand Forecasts Prior Week Current Week Next Week This Week Five-Year Last Year Average For Month U.S. Supply (bcfd) U.S. Lower 48 Dry Production 98.9 98.4 98.6 93.5 88.8 U.S. Imports from Canada 8.4 8.3 8.8 10.2 9.4 U.S. LNG Imports 0.0 0.0 0.0 0.2 0.4 Total U.S. Supply 107.3 106.7 107.4 103.9 98.6 U.S. Demand (bcfd) U.S. Exports to Canada 2.8 2.6 2.6 2.5 2.8 U.S. Exports to Mexico 5.3 5.3 5.2 6.0 5.3 U.S. LNG Exports 12.4 12.5 12.4 12.6 7.2 U.S. Commercial 14.8 16.5 18.4 20.4 17.1 U.S. Residential 24.5 27.8 31.3 35.0 29.8 U.S. Power Plant 29.5 32.6 33.4 32.3 28.5 U.S. Industrial 24.6 25.7 26.3 26.6 25.6 U.S. Plant Fuel 4.9 4.9 4.9 4.9 4.9 U.S. Pipe Distribution 2.7 2.9 3.1 2.9 2.4 U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1 Total U.S. Consumption 101.1 110.4 117.5 122.2 108.4 Total U.S. Demand 121.6 130.8 137.7 143.3 123.7 U.S. weekly power generation percent by fuel - EIA Week ended Week ended Week ended Week ended Week ended Jan 27 Jan 20 Jan 13 Jan 6 Dec 30 Wind 9 13 11 12 11 Solar 2 2 2 2 2 Hydro 7 7 7 7 6 Other 2 2 2 2 2 Petroleum 0 0 0 0 0 Natural Gas 40 36 38 36 35 Coal 19 18 19 18 23 Nuclear 21 21 21 23 19 SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu) Hub Current Day Prior Day Henry Hub 3.09 3.35 Transco Z6 New York 3.05 3.15 PG&E Citygate 15.31 18.50 Eastern Gas (old Dominion South) 2.61 2.62 Chicago Citygate 2.97 3.12 Algonquin Citygate 4.22 3.80 SoCal Citygate 17.00 18.95 Waha Hub 2.48 2.79 AECO 2.62 2.79 SNL U.S. Power Next-Day Prices ($ per megawatt-hour) Hub Current Day Prior Day New England 47.75 53.25 PJM West 37.50 43.50 Ercot North 28.00 32.75 Mid C 142.25 157.00 Palo Verde 102.25 187.00 SP-5 133.00 149.50 (Reporting by Scott DiSavino Editing by Nick Zieminski, John Stonestreet and David Gregorio)