February 02 -- U.S. natural gas futures fell about 2% to a fresh 20-month low on Friday ahead of the expiration of the front-month and a growing belief that there is more than enough gas in storage for the rest of the winter.
The February contract expires as the front-month on the New York Mercantile Exchange on Friday. 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 before plunging 26% the next day when the March contract became the new front-month.
The weather, meanwhile, is expected to turn from warmer than normal now to colder than normal from Jan. 30 to Feb. 6 before turning warmer than normal again through mid-February.
That should keep heating demand mostly low, at least when the weather is warmer than normal, and allow utilities to continue pulling less gas from storage for at least a fourth or even fifth week in a row. Gas stockpiles were currently about 5% above the five-year (2018-2022) average and are on track to rise to 7% above normal in next week’s federal storage report.
The biggest wild card in the gas market remains when Freeport LNG’s liquefied natural gas (LNG) export plant in Texas will exit a seven-month outage caused by a fire in June 2022.
The market cares about Freeport, the second biggest U.S. LNG export plant, because traders expect prices to jump once the facility starts pulling in big amounts of gas, boosting demand for the fuel. The plant can pull in about 2.1 billion cubic feet per day (bcfd) of gas and turn it into LNG.29dk2902l
That is about 2% of what U.S. gas producers pull from the ground each day.
On Thursday, federal regulators approved Freeport’s plan to start cooling down parts of the plant. That is an early step in the restart process, but will not result in big gas flows. The company still has to go back to regulators to get permission to restart the liquefaction trains that turn the gas into LNG for export.
Several analysts have said they don’t expect to see much LNG production from Freeport until March or later.
Even though vessels have turned away from Freeport in recent weeks, several tankers were still waiting in the Gulf of Mexico to pick up LNG from the plant, including Prism Courage (since around Nov. 4), Prism Agility (Jan. 2), Corcovado LNG (Jan. 22), Prism Brilliance (Jan. 26) and Kmarin Diamond (Jan. 26).
On its last day as the front-month, gas futures for February delivery fell 4.3 cents, or 1.5%, to $2.901 per million British thermal units (mmBtu) at 9:19 a.m. EST (1419 GMT), putting the contract on track for its lowest close since May 2021 for a second day in a row.
That puts the contract down for a fourth day in a row for the first time since early January and down for a sixth week in a row for the first time since October. During those six weeks, the front-month has dropped about 56%.
The March contract, which will soon be the front-month, was down about 1 cent at $2.84 per mmBtu.
Shares traded in the U.S. Natural Gas Fund, an exchange-traded fund (ETF) designed to track the daily price movement of gas, reached 36.9 million on Thursday, its highest since hitting a daily record high of 43.1 million in November 2018. UNG shares outstanding rose to a record high this week of 58.4 million.