U.S. natural gas prices gain 3% to six-week high with extreme cold coming

(Reuters) - U.S. natural gas prices climbed about 3% to a six-week high on Friday forecasts that extreme cold weather in mid- to late January will boost demand for the fuel for heating to its highest since hitting a record during a winter storm in December 2022.

In addition to sky-high demand, extreme cold could cause production to drop by freezing oil and gas wells, pipes and other energy equipment, which the energy industry calls freeze-offs.

Traders also noted that gas prices were up for a fourth day in a row because output was already down since hitting record highs in December and as record amounts of gas continued to flow to U.S. LNG export plants.

Prices rose despite forecasts for mild weather this week and next, and ample amounts of gas in storage. Analysts said there was currently about 12.1% more gas in storage than normal for this time of year.

Front-month gas futures for February delivery on the New York Mercantile Exchange rose 7.2 cents, or 2.6%, to settle at $2.893 per million British thermal units (mmBtu), their highest close since Nov. 22.       

For the week, the front-month gained about 15% after sliding about 4% last week. That was the biggest weekly percentage gain since mid-June.     

Even though the coldest part of winter was still coming, many traders said winter futures for November-March likely already peaked at $3.608 per mmBtu on Nov. 1 due primarily to recent record production and ample supplies of gas in storage.  


Financial firm LSEG said average gas output in the Lower 48 U.S. states fell to 107.4 billion cubic feet per day (bcfd) so far in January, down from a monthly record of 108.5 bcfd in December.   

Meteorologists projected the nation's weather would remain mostly warmer than normal through Jan. 11 before turning colder than normal from Jan. 12-20.   

With colder weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 135.0 bcfd this week to 135.9 bcfd next week and 150.1 bcfd in two weeks. The forecasts for this week and next were higher than LSEG's outlook on Thursday.

On a daily basis, total U.S. demand, including exports, would reach 158.2 bcfd on Jan. 16, according to LSEG's latest forecasts. That would be the most since winter storm Elliott in December 2022 but would fall short of the daily all-time high of 162.5 bcfd on Dec. 23, 2022, according to federal energy data from S&P Global Commodities Insights.  

U.S. pipeline exports to Mexico rose to an average of 5.5 bcfd so far in January, up from 4.6 bcfd in December but still well below the monthly record of 7.0 bcfd in August.

Analysts expect exports to Mexico to rise in coming months once U.S.-based New Fortress Energy's plant in Altamira in Mexico starts pulling in U.S. gas to turn into LNG for export.

Gas flows to the seven big U.S. LNG export plants rose to an average of 14.8 bcfd so far in January, up from a monthly record of 14.7 bcfd in December.) in Asia.

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