Texas LNG Terminal Closure and Low Export Flow Pull Natural Gas Down 3%
Natural gas prices in the domestic market are falling rapidly as facility closures and low export levels impact market.
Quick overview
- Natural gas prices in the U.S. dropped to $2.91 per MMBtu due to expectations of lower export flows.
- LNG rates fell to a six-week low as concerns grew over diminished export flows and the closure of a major Texas terminal.
- Despite rising global crude oil prices, domestic natural gas prices are declining due to high inventory levels and reduced production expectations.
- The closure of the Freeport LNG terminal is expected to impact U.S. natural gas production and pricing negatively for several weeks.
Expectations for lower expert flows kept natural gas prices low in the United States on Friday, bringing the price down to $2.91 per MMBtu.
LNG rates reached a six-week low as they dropped below $3 per MMBtu on worries that export flows would be greatly diminished in the coming weeks. The closure of a major Texas LNG terminal added to the concern, driving prices in the opposite direction of global gas prices.
The renewed fighting between Iran and the United States this week spurred tremendous growth in energy stocks and pushed crude oil prices much higher. Both the West Texas Intermediate and Brent crude benchmarks rose more than 5% after the attacks were announced. However, domestic natural gas has been falling for several days.
Elevated Supply Levels Are Subduing Price Growth
The natural gas market experienced tremendous growth stoppage from inventory levels since early last year. The price of gas has had trouble staying above $3 since that time thanks to higher than normal inventory levels.
The ample supply of domestic LNG and limited export expectations means that the price will continue to fall for now. Inventories remain around 6% higher than the 5-year average and are still receiving fresh injections. Each time the EIA reports on a new injection, it tends to cause the price to fall further, unless the injection is less than expected.
Natural gas rates fell 6% on Thursday despite global oil prices rising. Export facilities throughout the United States are anticipated to have lower than normal production and flows, and the production should slow down even further with the temporary closure of a Texas terminal. This LNG facility is scheduled for extensive maintenance.
The building is located in Quintina, Texas is the Freeport LNG terminal. Its closure means a reduction of about 2% of the overall natural gas production throughout the United States, impacting gas prices tremendously as well as the export trade. The facility will stay offline for a few weeks and could impact gas futures negatively until it reopens.
For the week, natural gas is expected to fall around 10%, which is unusually high and indicates a major shift in pricing trends. It is particularly interesting that this is happening at the same time global crude oil prices are on the rise, but those in the industry understand that the United States sources most of its LNG locally and does not rely on the wider, global market for supplies.
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