Natural Gas News: Can Freeport LNG’s Recovery Stabilize U.S. Natural Gas Prices?

Market Conditions and Price Movements

U.S. natural gas futures experienced a decline last week, as the May contract neared expiration. The downturn in prices was significantly influenced by a reduction in feedgas to Freeport LNG’s Texas export terminal and a substantial surplus in gas storage. As the front-month contract expired, May delivery on the New York Mercantile Exchange saw prices fall to their lowest since March 26.

Last week, Natural Gas settled at $1.923, down $0.177 or -8.43%.

Storage and Supply Excess

The latest report from the U.S. Energy Information Administration (EIA) revealed that utilities injected 92 billion cubic feet (bcf) of gas into storage for the week ending April 19, surpassing trader expectations which had forecast an 82 bcf increase. The current storage levels stand at 2,425 Bcf, which is significantly higher than last year by 439 Bcf and exceeds the five-year average by 655 Bcf. This substantial surplus underscores a heavily supply-sided market situation, which continues to press down prices.

Freeport LNG Outages and Industry Impact

Operational disruptions at Freeport LNG have compounded the downward pressure on U.S. gas prices, simultaneously impacting European markets. According to Gary Cunningham, director of market research at Tradition Energy, the repeated outages at Freeport, alongside current weather conditions, have been primary drivers behind the declining prices. However, the resumption of operations signaled by the departure of the first tanker since the recent outage offers a glimmer of hope for stabilization.

Anticipated Demand Drop and Production Declines

Forecasts by LSEG predict a drop in gas demand across the Lower 48 states, from 92.2 billion cubic feet per day (bcfd) to 91.7 bcfd next week. Moreover, production in these states has seen a reduction from 100.8 bcfd in March to 96.9 bcfd in April, further evidencing a market surplus. Ritterbusch and Associates highlighted the expanding spread between the May and June contracts as indicative of an oversupplied market, with utilities having little urgency to secure deliveries due to ample supplies.

Short-Term Forecast

The outlook for U.S. natural gas remains bearish in the short term, driven by the ongoing surplus in both storage and production. While the resumption of activities at Freeport LNG may provide some support, the broader market conditions of high supply and moderated demand are likely to keep prices subdued in the coming week.