US natgas futures drop in quiet trade; frigid weather drives up spot rates

Jan 20 (Reuters) - U.S. natural gas futures dropped to a near one-week low in holiday-thinned trade on Monday on forecasts of less cold weather starting late January, even as spot rates climbed as frigid cold conditions for most of the U.S. boosted demand for heating.

Front-month gas futures NGc1 for February delivery on the New York Mercantile Exchange fell 15.2 cents, or 3.8%, to $3.80 per million British thermal units (MMBtu) at 10:30 a.m. EST (1530 GMT), its lowest since Jan. 14. Trading volumes are low due to U.S. markets being closed for the Martin Luther King Jr. Day holiday and ahead of U.S. President-elect Donald Trump's inauguration later in the day.

"Spot prices kind of went crazy responding to extremely cold weather over the weekend and the next several days," said Zhen Zhu, managing consultant at C.H. Guernsey and Company in Oklahoma City.

"I think the futures price decline is a price correction, reflecting the market's reassessment of the impact of the colder than normal weather for January in the longer term."

The February contract closed at its highest level since Dec. 30, 2022 last week as cold weather over the weekend was on track to cut output by freezing gas wells and pipes and boost usage of the fuel to heat homes and businesses to record highs.

A mass of Arctic air will filter south and east through the early part of this week, triggering a rare and significant winter storm across Texas, the Gulf Coast, and the Southeast, the National Weather Service said, adding that this cold snap is expected to set multiple daily record low temperatures.

In the spot market, extreme cold weather boosted next-day gas prices to their highest since January 2024 at several hubs including the U.S. Henry Hub benchmark NG-W-HH-SNL in Louisiana, which more than doubled from Friday to hit $9.86 per MMBtu, and the Transco Z6 New York NG-CG-NY-SNL, which increased more than nine-fold from Friday to hit 42.855 MMBtu.

Financial firm LSEG forecast total gas use, including exports, will soar to 166.9 bcfd on Monday and is expected to rise to 170 bcf bcfd on Tuesday. If that happens, demand on Jan. 21 would top the current daily record high of 168.4 bcfd, hit on Jan. 16, 2024.

On a weekly basis, LSEG forecast average gas demand in the Lower 48, including exports, would rise to 151.6 bcfd this week from 145.5 bcfd last week.

After utilities pulled a massive 258 billion cubic feet (bcf) of gas out of storage during the week ended Jan. 10, analysts projected energy firms would keep pulling over 200 bcf of gas during the weeks ending Jan. 17 and Jan. 24 to meet soaring heating demand.

There is currently about 3% more gas in storage than usual for the time of year. Storage withdrawals this month could remove that surplus by the end of January, which would be the first time stockpiles would fall below the five-year average since January 2022. EIA/GAS NGAS/POLL

LSEG said average gas output in the Lower 48 U.S. states fell from 104.2 billion cubic feet per day (bcfd) in December to 103 bcfd so far in January due mostly to freezing oil and gas wells and pipes, known as freeze-offs.

Gas flows to U.S. LNG export plants was at an average of 14.2 bcfd so far in January, compared with 14.4 bcfd in December and a monthly record high of 14.7 bcfd in December 2023.

Meteorologists projected that weather in the Lower 48 states would remain mostly colder than normal through Jan. 26, before turning mostly near normal from Jan. 27- Feb. 1.

"Natural gas is down as the forecasts for later in the month have trended lower. While we will see significant withdrawals from inventory, hopes of a warm up is easing concerns that we will see storage surpluses disappear," said Phil Flynn, an analyst at Price Futures Group.

(Reporting by Anjana Anil and Swati Verma in Bengaluru; Editing by Susan Fenton)

((Anjana.Anil@thomsonreuters.com;))

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For U.S./Canada natural gas rig count vs Henry Hub futures price, see: http://tmsnrt.rs/2eT9k44

For the U.S. natural gas speed guide, see: USGAS

For the U.S. power speed guide, see: USPOWER

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NYMEX Henry Hub options and futures combined 0#3CFTC023651

NYMEX Henry Hub futures only 0#1CFTC023651

ICE Henry Hub options and futures combined 0#3CFTC023391

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