UPDATE 2-US natgas drops 5% to 3-week low on record output, big storage build

(Adds latest prices) June 1 (Reuters) - U.S. natural gas futures dropped about 5% to a three-week low on Thursday on record U.S. output, rising exports from Canada and a slightly bigger-than-expected weekly storage build. Prices fell despite record daily gas exports to Mexico and forecasts for warmer-than-expected weather over the next two weeks that should boost the amount of gas power generators burn to produce electricity for air conditioning. The U.S. Energy Information Administration (EIA) said utilities added 110 billion cubic feet (bcf) of gas into storage during the week ended May 26. That was slightly bigger than the 106-bcf increase analysts forecast in a Reuters poll and compared with a rise of 82 bcf in the same week last year and a five-year (2018-2022) average increase of 101 bcf. Analysts said the storage increase was bigger than usual because mild weather last week limited demand for the fuel for both heating and cooling. Last week's rise boosted stockpiles to 2.446 trillion cubic feet (tcf), or 16.6% above the five-year average of 2.097 tcf for the time of year. Front-month gas futures for July delivery on the New York Mercantile Exchange fell 10.8 cents, or 4.8%, to settle at $2.158 per million British thermal units (mmBtu), their lowest close since May 5. The premium of futures for August over July rose to 11.3 cents per mmBtu, putting it on track to hit an all-time high for a second day in a row after settling at a record 9.2 cents per mmBtu on Wednesday. Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to a record 102.5 billion cubic feet per day (bcfd) in May, topping the prior monthly all-time high of 102.2 bcfd in April. The amount of gas flowing from Canada to the United States was on track to jump to a near four-month high of 9.7 bcfd on Thursday from 8.3 bcfd on Wednesday, according to Refinitiv. That is up from an average of 7.0 bcfd from the May 6-22 period when wildfires in Alberta caused energy firms to cut oil and gas production. That compares with average Canada-to-U.S. exports of 8.3 bcfd since the start of the year and 9.0 bcfd in 2022. About 8% of the gas consumed in, or exported from, the United States comes from Canada. Gas exports from the United States to Mexico were on track to hit a preliminary 7.7 bcfd on Thursday, which would top the current daily all-time high of 7.3 bcfd set in June 2021. That compares with average U.S.-to-Mexico exports of 5.2 bcfd since the start of the year and 5.7 bcfd in 2022. Meteorologists projected the weather in the Lower 48 states would remain mostly near normal from June 1-11 before turning warmer than normal from June 12-16. Refinitiv forecast U.S. gas demand, including exports, would rise to 93.3 bcfd next week from 91.0 bcfd this week as the weather turns seasonally warmer. Those forecasts were higher than Refinitiv's forecast on Wednesday. Gas flows to the seven big U.S. LNG export plants fell from a record 14.0 bcfd in April to an average of 13.0 bcfd in May due to maintenance at several facilities, including Cheniere Energy Inc's Sabine Pass in Louisiana. Last month's record flows were higher than the 13.8 bcfd of gas the seven big plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG. Week ended Week ended Year ago Five-year May 26 May 19 May 26 average (Actual) (Actual) May 26 U.S. weekly natgas storage change (bcf): 110 96 82 101 U.S. total natgas in storage (bcf): 2,446 2,336 1,889 2,097 U.S. total storage versus 5-year average 16.6% 17.0% Global Gas Benchmark Futures ($ per mmBtu) Current Prior Day This Month Prior Year Five Year Day Last Year Average Average 2022 (2018-2022) Henry Hub 2.26 2.27 7.60 6.54 3.60 Title Transfer Facility (TTF) 7.53 8.19 33.44 40.50 14.39 Japan Korea Marker (JKM) 9.29 9.37 29.72 34.11 14.31 Refinitiv Heating (HDD), Cooling (CDD) and Total (TDD) Degree Days Two-Week Total Forecast Current Prior Day Prior Year 10-Year 30-Year Day Norm Norm U.S. GFS HDDs 13 12 14 24 24 U.S. GFS CDDs 140 139 132 145 140 U.S. GFS TDDs 153 151 146 169 164 Refinitiv U.S. Weekly GFS Supply and Demand Forecasts Prior Week Current Next Week This Week Five-Year Week Last Year Average For Month U.S. Supply (bcfd) U.S. Lower 48 Dry Production 101.7 103.0 103.2 97.3 89.8 U.S. Imports from Canada 6.4 6.9 6.5 8.2 7.9 U.S. LNG Imports 0.0 0.0 0.0 0.0 0.1 Total U.S. Supply 108.2 109.9 109.7 105.5 97.8 U.S. Demand (bcfd) U.S. Exports to Canada 2.3 2.5 2.2 2.7 2.3 U.S. Exports to Mexico 5.7 6.7 6.0 6.0 5.5 U.S. LNG Exports 12.8 13.4 13.4 12.8 6.0 U.S. Commercial 4.9 4.5 4.5 4.6 4.7 U.S. Residential 4.5 3.9 3.8 4.0 4.3 U.S. Power Plant 32.2 31.8 35.0 31.0 34.8 U.S. Industrial 21.3 21.2 21.2 20.7 21.1 U.S. Plant Fuel 5.0 5.1 5.1 5.1 5.1 U.S. Pipe Distribution 1.9 1.8 1.9 1.8 1.8 U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1 Total U.S. Consumption 70.0 68.5 71.7 67.3 71.9 Total U.S. Demand 90.8 91.0 93.3 88.8 85.7 U.S. weekly power generation percent by fuel - EIA Week ended Week ended Week ended Week ended Week ended Jun 2 May 26 May 19 May 12 May 5 Wind 10 9 8 12 13 Solar 5 5 4 5 5 Hydro 8 9 9 9 8 Other 2 2 2 2 2 Petroleum 0 0 0 0 0 Natural Gas 38 40 42 40 39 Coal 14 15 15 14 13 Nuclear 22 20 19 19 19 SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu) Hub Current Prior Day Day Henry Hub 2.10 2.11 Transco Z6 New York 1.50 1.50 PG&E Citygate 3.09 3.15 Eastern Gas (old Dominion South) 1.46 1.39 Chicago Citygate 1.88 1.90 Algonquin Citygate 4.89 1.73 SoCal Citygate 2.13 2.47 Waha Hub 1.60 1.98 AECO 1.51 1.43 SNL U.S. Power Next-Day Prices ($ per megawatt-hour) Hub Current Prior Day Day New England 54.50 28.00 PJM West 48.75 40.75 Ercot North 22.00 20.75 Mid C 54.50 19.75 Palo Verde 18.50 12.50 SP-15 20.75 13.25 (Reporting by Scott DiSavino; editing by Paul Simao, Emelia Sithole-Matarise and Richard Chang)