US natgas prices fall 3.5% on lower demand forecasts ahead

By Scott DiSavino

NEW YORK, Sept 25 (Reuters) - US natural gas futures fell about 3.5% on Friday on forecasts for less demand next week than previously expected and volatile, low-volume trading ahead of contract expiration on Monday.

On their second-to-last day as the front month, gas futures for October delivery on the New York Mercantile Exchange fell 11.7 cents, or 3.5%, to $3.180 per million British thermal units (mmBtu). On Thursday, the contract soared by 9% and closed at its highest since June 25.

For the week, the front-month was up about 9% after gaining about 3% last week.

Futures for November , which will soon be the front-month, were down about 3% to $3.26 per mmBtu.

The premium of futures for November over October fell to a record low of around 7 cents per mmBtu on Thursday, a sign the market is not too worried about supplies meeting demand this winter.

Traders use the October-November spread to bet on winter weather forecasts and supply and demand.

October is the last month of the April-October summer cooling season when demand for gas is generally low and utilities inject gas into storage. November is the first month of the November-March winter heating season when demand for fuel rises and utilities pull gas from storage.

It would be unusual for a summer season month like October to trade over a winter month like November.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the US Lower 48 states rose to 112.5 billion cubic feet per day so far in September, up from a monthly record high of 112.3 bcfd in August.

On a daily basis, however, output was on track to drop to near eight-month low of 106.9 bcfd on Friday, due mostly to declines in West Virginia and Texas.

Record output and mild spring weather have allowed energy firms to keep the amount of gas in inventory above the five-year (2021-2025) average since March, reaching a high of 7.7% above normal in April.

But hotter-than-normal weather over the summer forced energy firms to pull lots of gas from storage to produce power needed to keep air conditioners humming, cutting the inventory surplus. About 40% of US power generation comes from gas-fired plants.

With still warm weather this week, analysts predicted the amount of gas in storage slid to 2.4% above normal during the week ended September 25, down from 2.9% above normal in the previous week, according to estimates ahead of next Thursday's weekly federal inventory report. EIA/GAS NGAS/POLL

Looking forward, meteorologists forecast the weather would remain mostly near normal through October 10.

LSEG said average gas demand in the Lower 48 states, including exports, would fall from 108.0 bcfd this week to 102.8 bcfd next week before rising to 105.5 bcfd in two weeks. The forecast for next week was similar to LSEG's outlook on Thursday.

LNG EXPORTS

Average gas flows to the nine big US LNG export plants rose to 17.9 bcfd so far in September, up from 17.2 bcfd in August, but have remained short of the monthly record high of 18.8 bcfd in April.

The increase in average LNG feedgas so far in September has occurred despite the shutdown of US energy firm Berkshire Hathaway Energy's 0.8-bcfd Cove Point LNG export plant in Maryland around September 19 for a few weeks of planned annual maintenance.

Around the world, gas traded near $24 per mmBtu at the Dutch Title Transfer Facility benchmark in Europe and $26 at the Japan-Korea Marker benchmark in Asia. NG/EU

Global gas prices have spiked in recent years primarily due to supply disruptions linked to Russia's invasion of Ukraine in 2022 and the U.S.-Israeli war with Iran this year.

Prices in the US, however, have not reacted much to the war in Iran because the US produces all the gas it consumes domestically and US LNG companies are already liquefying as much fuel as they can.

No matter how high global gas prices go, the US cannot export much more LNG until units under construction enter service in coming months and years.