May 15, 2019 / 1:16 PM / a month ago

U.S. natgas drops as demand falls, big storage build seen

(Reuters) - U.S. natural gas futures on Wednesday fell from a four-week high in the previous session on forecasts for heating demand to decline over the next two weeks and expectations that a federal report will show a much bigger-than-usual storage build on Thursday.

Front-month gas futures for June delivery on the New York Mercantile Exchange fell 5.8 cents, or 2.2%, to settle at $2.601 per million British thermal units (mmBtu). On Tuesday, the contract settled at its highest since April 12 for a second day in a row.

That was the biggest daily percentage decline for the front-month in almost three weeks.

Despite the recent decline, traders noted market volatility has remained low since the weather started to warm this spring - just like this time last year - amid a widely held belief that record and growing production will meet any increase in demand.

In March and April, the difference between the highest and lowest daily trading levels for the front-month averaged 2.3% and 2.2%, respectively, or just 6 cents per mmBtu, making both months the least volatile for gas futures since August when the spread averaged 1.7%.

The high-low price spread so far in May was 2.1%, or 6 cents per mmBtu.

With the weather warming, Refinitiv projected demand in the Lower 48 U.S. states would slide to an average of 76.4 billion cubic feet per day (bcfd) next week, down from an expected 77.9 bcfd this week.

Those demand forecasts include an increase in the amount of gas flowing to U.S. LNG export terminals to record levels of around 5.9 bcfd as a new plant enters service, according to data provider Refinitiv.

Sempra Energy said on Tuesday that the first liquefaction train at its $10 billion Cameron LNG export terminal in Louisiana started producing LNG.

In addition to Cameron, the three big LNG export terminals already in service - Cheniere Energy Inc’s Sabine Pass in Louisiana and Corpus Christi in Texas, and Dominion Energy Inc’s Cove Point in Maryland - were operating near full power.

Output in the Lower 48, meanwhile, slipped to a one-week low of 88.4 bcfd on Tuesday due to small declines in several states, down from a near two-week high of 89.7 bcfd on Sunday, according to Refinitiv Eikon data. The all-time daily high is 90.4 bcfd on March 29.

Analysts said utilities likely added 104 billion cubic feet (bcf) of gas to inventories during the week ended May 10, the same as an injection of 104 bcf during the same week last year but well above a five-year (2014-2018) average build of 89 bcf for the period.

If correct, the increase last week would boost stockpiles to 1.651 trillion cubic feet, which is still 14.9% below the five-year average of 1.939 tcf for this time of year but only the lowest for the week since 2018. Gas in storage has been below the five-year average since September 2017.

Reporting by Scott DiSavino; Editing by Bernadette Baum and Marguerita Choy

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