Natural-gas futures saw a sharp decline on Monday, with front-month prices witnessing their largest daily drop in nearly two weeks. This can be attributed to an outage reported at Freeport LNG, which is expected to contribute to domestic supplies. Additionally, forecasts of milder weather have dimmed prospects for heating demand.
On the New York Mercantile Exchange, the front-month February natural-gas contract (NGG24) settled at $2.49 per million British thermal units, experiencing a decrease of 22 cents or 8.2%. This marks the contract’s largest daily percentage decline since January 16, according to Dow Jones Market Data.
The most-active March contract (NG00), also known as NGH24, settled at $2.05 per million Btus, down 12 cents or 5.6%. This is the lowest finish for the most-active contract since April 13 of last year.
The decline in natural-gas prices can be attributed to both mild short-term temperature outlooks in the U.S. as well as a production outage at the U.S. Freeport LNG terminal. Victoria Dircksen, a commodity analyst at Schneider Electric, mentioned in a daily report that these factors have exerted pressure on natural-gas prices.
According to a report from Reuters, Freeport LNG announced on Friday that one of their three liquefaction units at their Texas plant would be out of service for a month due to a technical issue during Winter Storm Heather.
Temporary Freeport Outage to Impact LNG Export Volumes
The Freeport LNG terminal in Texas is facing an outage that is expected to impact export volumes for at least a month, according to industry experts. The facility’s feedgas utilization has been reduced by 45% to 55% due to an electrical issue caused by winter weather conditions in January. The outage comes at a time when the Biden administration recently announced a pause in liquefied natural gas export approvals.
Impact on Energy Market and Supply
As the largest exporter of LNG globally, the United States will be affected by this temporary outage. It is anticipated that the market conditions will be more relaxed during this period, with around 1 billion cubic feet per day of supply being retained for domestic use. This additional supply will add to the current oversupply conditions in the market.
Increase in Natural Gas Inventories
In line with the temporary Freeport outage, U.S. natural gas supplies have recorded their largest weekly gain in nearly three years. Inventories in storage increased by 326 billion cubic feet for the week ending January 19, as reported by the Energy Information Administration. This puts supplies 142 billion cubic feet above the five-year average.
Declining Natural-Gas Prices
Despite the significant increase in natural-gas inventories, prices for the commodity are experiencing a decline. This phenomenon is intriguing, considering it coincides with the largest supply drop observed in the past three years.
In conclusion, the temporary outage at the Freeport LNG terminal in Texas is expected to have a notable impact on LNG export volumes. As the U.S. government evaluates the environmental implications of greenhouse gas emissions, the pause in LNG export approvals adds another layer of complexity to the energy market. The increase in natural gas inventories further contributes to the oversupplied conditions, while natural-gas prices continue to decrease despite supply constraints.
