U.S. natgas plunges 8% to 21-month low ahead of expiration and storage report

Jan 26 (Reuters) - U.S. natural gas futures plunged about 8% to a 21-month low on Thursday on forecasts for less cold weather and lower heating demand next week than previously expected and a growing belief in the market that Freeport LNG's liquefied natural gas (LNG) export plant in Texas will not actually restart until March or later. That price plunge also came ahead of a federal report expected to show last week's storage withdrawal was much smaller than usual because the weather then was warmer than normal, keeping heating demand low. The price more also occurred the day before the expiration of the February contract as the front-month on the New York Mercantile Exchange when volatility often peaks because trading volumes are low. In 2022, gas prices soared by a record 46% when the February contract expired before plunging 26% the next day when the March contract became the front-month. Analysts forecast U.S. utilities pulled just 82 billion cubic feet (bcf) of gas from storage during the week ended Jan. 20. That compares with a decrease of 217 bcf in the same week last year and a five-year (2018-2022) average decline of 185 bcf. If correct, last week's decrease would cut stockpiles to 2.738 trillion cubic feet (tcf), or 5.3% above the five-year average of 2.601 tcf for this time of year. Earlier this week, Freeport said its export plant was ready to begin the process of exiting a seven-month outage, pending regulatory approval. But several analysts have stuck with their earlier estimates that it will take until March or later for the plant to actually start pulling in big amounts of gas from pipelines. Freeport, the second-biggest U.S. LNG exporter, is important because the market expects gas prices and demand to rise once the plant returns. The facility, which shut in a fire on June 8, 2022, can pull in about 2.1 billion cubic feet per day (bcfd) of gas and turn it into LNG when operating at full power. That is about 2% of what U.S. gas producers pull out of the ground each day. Small amounts of pipeline gas started flowing to Freeport on Thursday, according to Refinitiv data. Officials at Freeport had no comment on what they were using the gas for. The last two times gas flowed to Freeport from Jan. 14-18 and Dec. 20-28, sources said the company used the gas to maintain a flare system. On its second to last day as the front-month, gas futures for February delivery fell 24 cents, or 7.8%, to $2.827 per million British thermal units (mmBtu) at 9:20 a.m. EST (1420 GMT), putting the contract on track for its lowest close since April 2021. That continues the record volatility seen last year, with the contract now on track to close up or down over 5% on 10 of the 17 trading days in 2023. The March contract, which will soon be the front-month, was down about 20 cents to $2.71 per mmBtu. Meanwhile, recent increases in crude futures to a nine-week high boosted oil's premium over gas to its highest since January 2020. Over the last several years that premium has prompted U.S. energy firms to focus drilling activity on finding more oil instead of gas. The oil-to-gas ratio, or level at which oil trades compared with gas, jumped to 29-to-1 on Thursday. So far in 2023, crude has traded about 22 times over gas, much higher than crude's average premium of 15 times gas in 2022 and a five-year average (2018-2022) of 20 times. On an energy equivalent basis, oil should trade only six times over gas. Week ended Week ended Year ago Five-year Jan 20 Jan 13 Jan 20 average (Forecast) (Actual) Jan 20 U.S. weekly natgas storage change (bcf): -82 -82 -217 -185 U.S. total natgas in storage (bcf): 2,738 2,820 2,622 2,601 U.S. total storage versus 5-year average +5.3% +1.2% Global Gas Benchmark Futures ($ 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)