US natural gas prices drop 6% to two-week low on surprise storage build, lower demand

By Scott DiSavino

March 20 (Reuters) - U.S. natural gas futures dropped about 6% to a two-week low on Thursday on a surprise storage build and forecasts for milder weather and less demand next week than previously expected.

Energy traders noted that forecast decline in gas demand should allow utilities to keep adding the fuel to storage in the coming weeks.

Front-month gas futures NGc1 for April delivery on the New York Mercantile Exchange fell 27.2 cents, or 6.4%, to settle at $3.975 per million British thermal units (mmBtu), their lowest close since February 28.

The U.S. Energy Information Administration (EIA) said utilities added 9 billion cubic feet (bcf) of gas out of storage during the week ended March 14.

That was a surprise build versus the draw of 3 bcf that analysts forecast in a Reuters poll and compares with an increase of 5 bcf during the same week last year and a five-year average draw of 31 bcf for this time of year. EIA/GAS NGAS/POLL

Despite the storage build, gas stockpiles were still around 10% below normal levels for this time of year after extremely cold weather in January and February forced energy firms to pull large amounts of gas out of storage, including record amounts in January.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the Lower 48 U.S. states has risen to 105.8 billion cubic feet per day (bcfd) so far in March, up from a record 105.1 bcfd in February.

On a daily basis, however, output over the past three days was on track to drop by around 2.4 bcfd to a preliminary three-week low of 104.4 bcfd on Thursday.

Traders said the daily drop was likely related to spring pipeline maintenance in Texas and other states, which helped cause spot prices at the Waha Hub NG-WAH-WTX-SNL in West Texas to turn negative in recent days. The traders noted that preliminary output data is often updated later in the day.

Meteorologists projected weather in the Lower 48 states would remain mostly near normal through April 4.

LSEG forecast average gas demand in the Lower 48, including exports, will rise from 106.8 bcfd this week to 107.9 bcfd next week. The forecast for next week was lower than LSEG's outlook on Wednesday.

The amount of gas flowing to the eight big operating U.S. LNG export plants has risen to an average of 15.7 bcfd so far in March, up from a record 15.6 bcfd in February, as new units at Venture Global's VG.N 3.2-bcfd Plaquemines LNG export plant under construction in Louisiana enter service.

The U.S. became the world's biggest LNG supplier in 2023, surpassing Australia and Qatar, as surging global prices fed demand for more exports due in part to supply disruptions and sanctions linked to Russia's 2022 invasion of Ukraine.

Gas was trading around $14 per mmBtu at both the Dutch Title Transfer Facility (TTF) TRNLTTFMc1 benchmark in Europe and the Japan Korea Marker (JKM) JKMc1 benchmark in Asia. NG/EU