U.S. natural gas futures drop 4% on rising output, milder weather

April 3 (Reuters) - U.S. natural gas futures dropped about 4% on Monday on rising output and forecasts for milder weather and less heating demand than previously expected, which should allow utilities to start injecting gas into stockpiles this week. That price decline occurred despite a rise in the amount of gas flowing to liquefied natural gas (LNG) export plants to a record high in March after Freeport LNG's export plant in Texas exited an eight-month outage in February and returned to full power over the past week. Freeport LNG shut in June 2022 after a fire. Front-month gas futures for May delivery on the New York Mercantile Exchange (NYMEX) were down 8.8 cents, or 4.0%, to $2.128 per million British thermal units at 9:06 a.m. EDT (1306 GMT). On Friday, the contract jumped 5% to its highest close since March 24. The market has been extremely volatile in recent weeks with the front-month gaining or losing more than 5% in 11 of the past 21 trading days. With gas market volatility rising, open interest in NYMEX gas futures rose to 1.34 million contracts on Friday, the most since October 2021. Open interest in the front-month contract alone rose to more than 385,000 contracts on Friday, the most since March 2020. The drop in gas prices coupled with a 20% increase in crude futures over the past couple of weeks boosted oil's premium over gas to its highest in almost 11 years. That premium has prompted U.S. energy firms to focus drilling activity on finding more oil instead of gas in recent years. The oil-to-gas ratio, or level at which oil trades compared with gas, jumped to 39-to-1 on Monday, its highest since May 2012. Crude's premium has averaged 29 times over gas so far in 2023, 15 times over in 2022 and 20 times over during the past five years (2018-2022). On an energy equivalent basis, oil should trade six times over gas. Last week, gas speculators cut their net short futures and options positions on the New York Mercantile and Intercontinental Exchanges for a fifth week in a row to their lowest since July 2022, according to the U.S. Commodity Futures Trading Commission's Commitments of Traders report. Freeport LNG's export plant was on track to pull in about 2.2 billion cubic feet per day (bcfd) of gas on Monday, up from 2.0 bcfd on Sunday, according to data provider Refinitiv. That is more than the 2.1 bcfd of gas Freeport LNG can turn into LNG for export. LNG plants can pull in more gas than they can turn into LNG because they use some of the fuel to power equipment used to produce LNG. Average gas flows to all seven big U.S. LNG export plants have risen to 14.1 bcfd so far in April, up from a record 13.2 bcfd in March. SUPPLY AND DEMAND Refinitiv said average gas output in the U.S. Lower 48 states has risen to 100.1 bcfd so far in April, up from 98.7 bcfd in March. That compares with a monthly record of 100.4 bcfd in January 2023. Meteorologists projected the weather in the Lower 48 states would remain mostly warmer than normal through April 18, except for a few days from April 6-8 that will be near to colder than normal. With warmer spring-like weather expected to keep reducing the amount of gas burned to heat homes and businesses, Refinitiv forecast U.S. gas demand, including exports, would drop from 102.7 bcfd this week to 97.9 bcfd next week. Those forecasts were lower than Refinitiv's outlook on Friday. Mostly mild weather over the winter of 2022-2023 allowed utilities to leave more gas in storage and should enable them start injecting fuel into inventories this week. Week ended Week ended Year ago Five-year Mar 31 Mar 24 Mar 31 average (Forecast) (Actual) Mar 31 U.S. weekly natgas storage change (bcf): -20 -47 -24 0 U.S. total natgas in storage (bcf): 1,833 1,853 1,387 1,532 U.S. total storage versus 5-year average 19.6% 21.0% 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 2.08 2.22 6.70 6.54 3.60 Title Transfer Facility (TTF) 15.48 14.93 31.83 40.50 14.39 Japan Korea Marker (JKM) 13.52 12.70 29.22 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 140 191 191 184 184 U.S. GFS CDDs 39 30 32 29 26 U.S. GFS TDDs 179 221 223 213 210 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 100.1 100.1 100.2 95.6 89.7 U.S. Imports from Canada 6.9 6.6 7.0 8.9 8.6 U.S. LNG Imports 0.0 0.0 0.0 0.0 0.1 Total U.S. Supply 107.0 106.7 107.2 104.5 98.4 U.S. Demand (bcfd) U.S. Exports to Canada 2.8 2.1 2.0 2.5 2.6 U.S. Exports to Mexico 5.5 5.4 5.1 5.6 5.1 U.S. LNG Exports 13.2 14.0 13.6 12.5 7.1 U.S. Commercial 11.5 9.3 8.2 9.8 8.7 U.S. Residential 17.7 13.5 11.1 13.9 12.5 U.S. Power Plant 29.8 29.2 29.1 25.6 24.9 U.S. Industrial 22.8 21.9 21.7 23.1 22.5 U.S. Plant Fuel 4.9 4.9 4.9 4.9 4.9 U.S. Pipe Distribution 2.4 2.2 2.1 2.4 2.4 U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1 Total U.S. Consumption 89.2 81.2 77.2 79.8 76.0 Total U.S. Demand 110.7 102.7 97.9 100.4 90.8 U.S. weekly power generation percent by fuel - EIA Week ended Week ended Week ended Week ended Week ended Apr 1 Mar 31 Mar 24 Mar 17 Mar 10 Wind 16 14 14 15 12 Solar 4 4 3 3 3 Hydro 7 7 7 7 7 Other 2 2 2 2 2 Petroleum 0 0 0 0 0 Natural Gas 37 39 37 37 41 Coal 15 16 17 16 16 Nuclear 19 19 18 19 20 SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu) Hub Current Day Prior Day Henry Hub 2.10 1.95 Transco Z6 New York 1.81 1.68 PG&E Citygate 6.36 7.10 Eastern Gas (old Dominion South) 1.79 1.65 Chicago Citygate 2.09 1.95 Algonquin Citygate 2.00 2.03 SoCal Citygate 7.50 8.38 Waha Hub 1.13 1.54 AECO 1.88 1.87 SNL U.S. Power Next-Day Prices ($ per megawatt-hour) Hub Current Day Prior Day New England 29.75 31.25 PJM West 26.00 24.75 Ercot North 42.50 21.00 Mid C 97.00 66.00 Palo Verde 26.00 40.00 SP-15 25.00 49.25 (Reporting by Scott DiSavino; Editing by Paul Simao)