U.S. natgas prices jump 4% on colder forecasts, lower output

(Reuters) - U.S. natural gas futures jumped about 4% on forecasts for colder weather and higher heating demand over the next two weeks than previously expected, and on a continued drop in U.S. output after gas prices collapsed to a 3-1/2-year low in February.

Front-month gas futures <NGc1> for April delivery on the New York Mercantile Exchange rose 6.5 cents, or 3.9%, to $1.720 per million British thermal units (mmBtu) by 9:57 a.m. EDT (1357 GMT). On Friday, the contract closed at its lowest since Feb. 27.

Prices fell as low as $1.511 per mmBtu on Feb. 27, their lowest since June 2020, as near-record output, mostly mild weather and low heating demand this winter allowed utilities to leave significantly more gas in storage than usual for this time of year.

Analysts estimated current gas stockpiles were around 40% above normal levels. [EIA/GAS][NGAS/POLL]

Those low prices were expected to boost U.S. gas use to a record high in 2024, but will cut production for the first time since 2020 when the COVID-19 pandemic destroyed demand for the fuel, according to the U.S. Energy Information Administration's (EIA) latest outlook.

Output was already down by around 4% over the past month as several energy firms, including EQT<EQT.N> and Chesapeake Energy<CHK.O>, delay well completions and cut back on other drilling activities.

EQT is currently the biggest U.S. gas producer and Chesapeake will soon become the biggest producer after its merger with Southwestern Energy<SWN.N>.

Even though prices fell about 8% last week, speculators cut their net short futures and options positions on the New York Mercantile and Intercontinental Exchanges for a third week in a row to their lowest since late January.

In the spot market, mostly mild weather across the country cut next-day gas prices at the Southern California Border <NG-SCL-CGT-SNL> to their lowest since July 2020 and next-day power at the PJM West Hub <EL-PK-PJMW-SNL> to its lowest since April 2021.

PJM West extends from northwestern Pennsylvania to Washington, D.C.

In Texas, meanwhile, next-day gas at the Waha hub <NG-WAH-WTX-SNL> in the Permian Shale in West Texas rose to a positive 29 cents per mmBtu for Monday, up from a 10-month low of negative 35 cents for Friday.

Traders said prices turn negative to encourage producers to stop pulling gas out of the ground when the fuel gets trapped in a supply basin like the Permian due to pipeline outages during times of low demand.

SUPPLY AND DEMAND

Financial firm LSEG said gas output in the Lower 48 U.S. states fell to an average of 100.3 billion cubic feet per day (bcfd) so far in March, down from 104.1 bcfd in February. That compares with a monthly record of 105.5 bcfd in December 2023.

Meteorologists projected weather across the Lower 48 states would remain colder than normal through March 25 before turning to near- to warmer-than-normal levels from March 26-April 2.

LSEG forecast gas demand in the Lower 48 states, including exports, would remain near 113.5 bcfd this week and next. Those forecasts were higher than LSEG's outlook on Friday.

Gas flows to the seven big U.S. liquefied natural gas (LNG) export plants slid to an average of 13.2 bcfd so far in March, down from 13.7 bcfd in February. That compares with a monthly record of 14.7 bcfd in December.

Analysts do not expect U.S. LNG feedgas to return to record levels until all three liquefaction trains at Freeport LNG's export plant in Texas return to full service, which could happen in late March.

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