U.S. natural gas futures plunged by about 15% on Monday - its biggest one-day drop in over eight months —on forecasts for much less cold weather and heating demand than previously expected over the next two weeks.
That price drop came after the contract soared about 9% to a five-week high on Friday as gas flows to U.S. liquefied natural gas (LNG) export plants jumped to a record high with Freeport LNG's export plant in Texas ramping up after exiting an eight-month outage in February.
"Natural gas futures have fallen massively today after major weather models corrected their forecasts higher throughout their 15-day forecasts," analysts at energy consulting firm Gelber and Associates said in a note.
"This has translated to ... [gas] demand lost over the forecast period ... With the vast majority of that being [residential and commercial] demand," Gelber said.
Meteorologists boosted their two-week average temperature forecasts for the U.S. Lower 48 states to 45 degrees Fahrenheit (7 degrees Celsius) on Monday from around 43 F on Friday, according to data provider Refinitiv. That compares with a normal level of around 46 F at this time of year.
Front-month gas futures for April delivery on the New York Mercantile Exchange fell 43.7 cents to settle at $2.572 per million British thermal units (mmBtu), their lowest close since Jan. 24.
In what has already been an extremely volatile start to the year, Monday's price drop was the front-month's biggest daily percentage decline since falling around 17% on June 30.
The gas market is used to huge price swings, which are usually related to changes in weather forecasts. The front-month fell to a 28-month low of below $2 per mmBtu on Feb. 22 on warmer weather forecasts before jumping to a five-week high over $3 just over one week later on March 3 on colder forecasts.
The drop in gas futures put pressure on shares of several gas producers, including Chesapeake Energy Corp and EQT Corp, which were both down about 4% Monday afternoon.
Freeport LNG
Freeport LNG's export plant, meanwhile, was on track to pull in about 1.7 billion cubic feet per day (bcfd) of gas on Monday, up from 1.4 bcfd on Friday, according to data provider Refinitiv.
When operating at full power, Freeport LNG, the second-biggest U.S. LNG export plant, can turn about 2.1 bcfd of gas into LNG for export. The plant shut in a fire in June 2022.
Federal regulators have approved the restart of two of Freeport LNG's liquefaction trains (Trains 2 and 3). But on Monday, federal regulators had more questions about Freeport LNG's Feb. 27 request to restart the third train (Train 1) and other parts of the plant. Liquefaction trains turn gas into LNG.
Total gas flowing to U.S. LNG export plants rose to 13.7 bcfd so far in March from 12.8 bcfd in February. That compares with a monthly record of 12.9 bcfd in March 2022, before the Freeport LNG facility shut.
Supply and demand
With colder weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 116.7 bcfd this week to 120.7 bcfd next week. Those forecasts, however, were much lower than Refinitiv's outlook on Friday.
Milder winter weather so far this year has prompted utilities to leave more gas in storage than usual.
Gas stockpiles were about 19% above their five-year average (2018-2022) during the week ended Feb. 24 and were expected to end about 22% above normal during the week ended March 3, according to federal data and analysts' estimates.
Even though mild weather this winter has reduced demand for gas, analysts at U.S. investment bank Piper Sandler said some holders of gas in storage were "forced to make mandatory withdrawals (at any price), which drove incremental selling pressure."
Historically, those contractual withdrawal requirements have been in place to make room in storage facilities for the upcoming April-October injection season.