U.S. natgas prices up 3% to 1-week high on colder forecasts, lower output

(Reuters) - U.S. natural gas futures climbed about 3% to a one-week high on forecasts for colder weather and higher heating demand over the next two weeks than previously expected.

Energy traders also noted that futures were supported by 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 4.80 cents, or 2.8%, to $1.751 per million British thermal units (mmBtu) at 8:37 a.m. EDT (1237 GMT), putting the contract on track for its highest close since March 11.

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 6% 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.

In the spot market, next-day gas at the Waha hub <NG-WAH-WTX-SNL> in the Permian Shale in West Texas fell about 53% to a positive 14 cents per mmBtu for Tuesday. Last week, Waha prices collapsed to 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 100.20 billion cubic feet per day (bcfd) so far in March, down from 104.10 bcfd in February. That compares with a monthly record of 105.50 bcfd in December 2023.

On a daily basis, output was on track to drop by around 6.10 bcfd over the past month to a preliminary two-month low of 98.30 bcfd.

That would be the lowest daily production since early February 2023, excluding the massive 17.30-bcfd drop due to freezing wells during a brutal freeze in mid-January.

LSEG forecast gas demand in the lower 48 states, including exports, would rise from 114.70 bcfd this week to 115.0 bcfd next week. Those forecasts were higher than LSEG's outlook on Monday.

Gas flows to the seven big U.S. liquefied natural gas (LNG) export plants slid to an average of 13.30 bcfd so far in March, down from 13.70 bcfd in February. That compares with a monthly record of 14.70 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.

Based on the amount of gas flowing to Freeport LNG, analysts said it looked like a second train at the plant was starting to return to service. Freeport LNG said on Monday that train 1 was operating but would not comment on the status of trains 2 and 3, which had been shut.

(Reporting by Scott DiSavino; Editing by Vijay Kishore)

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