Weekly Natural Gas Analysis and Forecast

US Natural Gas Futures Ease on Milder Weather and Reduced Demand

US natural gas futures experienced a slight decline of about 1% on Friday due to forecasts of milder weather and reduced demand for the following week. This price decrease occurred despite a reduction in output, record exports to Mexico, and an increase in the amount of gas flowing to US liquefied natural gas (LNG) export plants, even though some plants were undergoing maintenance.

Decline in Output and Weather Forecast

Financial analysts have noted that average gas output in the lower 48 US states has decreased to 102.1 billion cubic feet per day in September, down from a record 102.3 billion in August. Meteorologists predict that the weather in the lower 48 states will remain mostly warmer than normal through October 14, with a few cooler near-normal days around October 7 to 11. With the expectation of mostly mild weather, analysts forecast a decrease in US gas demand, including exports, from 95.7 billion cubic feet per day this week to 94.8 billion next week as power generators reduce the amount of gas needed for air conditioning. However, as the weather becomes seasonally cooler and exports increase, natural gas demand is expected to rise to 95.8 billion cubic feet per day in two weeks due to increased heating demand.

Record Exports to Mexico and Rise in LNG Export Plants

Pipeline exports to Mexico have risen to an average of 7.2 billion cubic feet per day in September, up from a record 7.1 billion in August. Analysts anticipate further increases in exports to Mexico in the coming months, particularly when New Fortress Energy’s Altamira LNG export plant begins operations. Gas flows to the seven major US LNG export plants have also increased, reaching an average of 12.6 billion cubic feet per day in September, up from 12.3 billion in August. Despite ongoing maintenance at certain plants, such as Cove Point in Maryland, Cheniere Energy’s Sabine Pass in Louisiana, and Corpus Christi in Texas, the increase in LNG feed gas has been significant. Cove Point, for example, underwent a two-week maintenance period starting on September 20.

European Gas Prices and Concerns over Russian Political Risk

At the start of the week, European gas prices rose to multi-week highs due to extended Norwegian maintenance outages. However, prices later eased as some maintenance outages ended, although there were revisions in the maintenance schedule for October. As concerns over Australian disruption dissipate, attention has shifted back to Russian political risk. There is also concern that measures taken to curb gasoline and diesel exports could spread to other commodity classes. These factors, combined with supply issues in Europe, have contributed to the strength of TTF and JKM prices over the past week. Additionally, there has been an increase in tendering activities in the market, putting upward pressure on Asian prices. Analysts expect Japanese buyers to enter the market soon.

Biden Administration’s Offshore Oil and Gas Leasing Plan

The Biden administration’s five-year plan for offshore oil and gas leasing has raised eyebrows due to its limited number of sales. The plan features only three sales in the final four years, with none scheduled for 2024, which is the lowest number in program history. This has disappointed both environmental groups and oil companies, as they have conflicting views on the program’s role in climate change and energy supply. Previous plans typically included more sales, ranging from 15 to 20, with none having fewer than 11. The schedule for leasing in the Gulf of Mexico and Alaska for 2024-2028 has faced delays and debates between environmentalists and drilling advocates. While this plan deviates significantly from the Trump administration’s 2018 proposal of 47 lease sales, including areas like California and the Atlantic, it falls short of Biden’s promise to end federal drilling to combat climate change. Legislation and court decisions require leasing for offshore wind power, and the White House argues that oil lease sales are essential for its ambitious wind energy goals. The Interior Department is legally obligated to create a national oil and gas leasing schedule every five years, but the previous plan expired in June 2022 amid heated debates. Last year’s proposed plan contemplated zero to 11 lease sales, reflecting the ongoing tension between energy and the environment.

Frequently Asked Questions (FAQs)

1. Why did US natural gas futures decline despite a reduction in output?

The decline in US natural gas futures can be attributed to forecasts of milder weather and reduced demand for the following week. Despite a reduction in output, the weather is expected to remain mostly mild, leading to a decrease in gas demand, including exports.

2. What is the outlook for natural gas demand in the coming weeks?

Analysts predict that natural gas demand will climb in the coming weeks due to seasonally cooler weather and increased heating demand. Although demand is expected to slide in the short term, the rise in exports and the need for heating will contribute to an overall increase in gas demand.

3. How have exports to Mexico and LNG export plants been performing?

Exports to Mexico have reached record levels, with pipeline exports averaging 7.2 billion cubic feet per day in September. Gas flows to the seven major US LNG export plants have also increased, reaching an average of 12.6 billion cubic feet per day. Despite ongoing maintenance at certain plants, the increase in LNG feed gas has been significant.

4. What factors have influenced European gas prices?

European gas prices initially rose to multi-week highs due to extended Norwegian maintenance outages. However, prices later eased as some maintenance outages ended. Concerns over Russian political risk and supply issues in Europe have also contributed to the strength of gas prices.

5. What is the Biden administration’s offshore oil and gas leasing plan?

The Biden administration’s offshore oil and gas leasing plan has raised concerns due to its limited number of sales. The plan features only three sales in the final four years, with none scheduled for 2024. This has disappointed both environmental groups and oil companies, as they have conflicting views on the program’s role in climate change and energy supply. The plan deviates significantly from the previous administration’s proposal and falls short of Biden’s promise to end federal drilling.