US natgas prices drop 5% to 2-week low on milder weather forecasts

By Scott DiSavino

Oct 10 (Reuters) - U.S. natural gas futures dropped about 5% on Friday to a two-week low, on ample amounts of fuel in storage and forecasts for mild weather that should keep heating and cooling demand low over the next two weeks.

Front-month gas futures for November delivery NGc1 on the New York Mercantile Exchange fell 16.3 cents, or 5.0%, to settle at $3.106 per million British thermal units (mmBtu), their lowest close since September 26.

For the week, the contract fell about 7%. Last week, it jumped about 17%.

Looking forward, the market is showing signs that traders are not worried about having enough gas supplies for the winter, with the premium of futures for March over April 2026 NGH26-J26 on track to fall to a record low of around 10 cents per mmBtu.

The industry calls the March-April spread the "widow-maker" because rapid price moves resulting from changing weather forecasts have forced some speculators out of business. Notably, the Amaranth hedge fund lost more than $6 billion in 2006.

Traders use the March-April and October-November NGV26-X26 spreads to bet on winter weather forecasts and supply and demand. March is the last month of the winter-heating season when utilities pull gas out of storage, and October is the last month of the summer cooling season when utilities inject gas into storage.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the Lower 48 states has fallen to 106.4 billion cubic feet per day so far in October, down from 107.4 bcfd in September and a record monthly high of 108.0 bcfd in August.

Record output earlier this year allowed energy companies to inject more gas into storage than usual. There is currently about 4% more gas in storage than normal for this time of year. EIA/GAS NGAS/POLL

Meteorologists forecast the weather will remain mostly warmer than normal through October 25.

That late-season warmth should reduce gas demand by cutting the amount of fuel used to heat homes and businesses by more than it boosts the amount of fuel that power generators burn to keep air conditioners humming. About 40% of the power produced in the U.S. comes from burning gas.

LSEG projected average gas demand in the Lower 48 states, including exports, would ease from 100.6 bcfd this week to 100.3 bcfd next week before rising to 103.3 bcfd in two weeks. The forecast for next week was higher than LSEG's outlook on Thursday.

The average amount of gas flowing to the eight big U.S. LNG export plants has risen to 16.1 bcfd so far in October from 15.7 bcfd in September and a monthly record high of 16.0 bcfd in April.

On a daily basis, LNG export feedgas was on track to rise to a preliminary eight-week high of 16.5 bcfd even though Berkshire Hathaway Energy's 0.8-bcfd Cove Point plant in Maryland remained shut for planned maintenance.

Analysts noted LNG feedgas was near record highs as new units entered service at Venture Global LNG's VG.N 3.2-bcfd Plaquemines facility in Louisiana and Cheniere Energy's LNG.N 3.9-bcfd Corpus Christi plant in Texas.

In other LNG news, BP BP.L won its arbitration case against Venture Global over the U.S. supplier's failure to deliver LNG under a long-term contract that was due to start in late 2022.