U.S. natgas jumps 8% on talk of higher flows to Freeport LNG

A drilling rig operates in the Permian Basin oil and natural gas production area in Lea County, New Mexico, U.S., February 10, 2019. REUTERS/Nick Oxford/File Photo

Aug 11 (Reuters) - U.S. natural gas futures jumped about 8% to a two-week high on Thursday on talk of increased gas flows to the Freeport liquefied natural gas export plant in Texas, which shut in June, a drop in gas output and forecasts for more demand over the next two weeks than previously expected.

Officials at Freeport said the company was still using the gas to feed a power plant that was generating electricity for the Texas grid. Freeport has been pulling in gas to feed the power plant since around mid July. read more [nL1N2Z224T]

Freeport LNG, meanwhile, retracted the force majeure it initially declared after the explosion in June, a development that could cost its buyers billions of dollars in losses. read more

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Robert Yawger, executive director of energy futures at Mizuho, said the Freeport news "put a bid in the market."

The gas price increase came despite a bigger-than-expected storage build as the ongoing outage at Freeport leaves more gas in the United States for utilities to inject into stockpiles for next winter.

Freeport LNG, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. Freeport expects the plant to return to at least partial service in early October. read more

The U.S. Energy Information Administration (EIA) said utilities added 44 billion cubic feet (bcf) of gas to storage during the week ended Aug. 5.

That was more than the 39-bcf build analysts forecast in a Reuters poll and compares with an increase of 44 bcf in the same week last year and a five-year (2017-2021) average increase of 45 bcf.

Analysts forecast last week's build would be smaller than usual because power generators continued to burn the fuel to keep air conditioners humming during a heatwave that has lingered over much of the country this summer.

Front-month gas futures rose 67.2 cents, or 8.2%, to settle at $8.874 per million British thermal units (mmBtu), their highest close since July 26.

So far this year the front-month is up about 140%, as higher prices in Europe and Asia keep demand for U.S. LNG exports strong. Global prices have soared this year following supply disruption and concerns of shortages linked to Moscow's invasion of Ukraine on Feb. 24.

Gas was trading around $63 per mmBtu in Europe and $45 in Asia .

The United States became the world's top LNG exporter during the first half of 2022. But no matter how high global gas prices rise, the United States cannot export more LNG because the country's plants were already operating at full capacity. read more

Russian gas exports via the three main lines into Germany - Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route - held around 2.5 bcfd on Wednesday, the same as Tuesday.

That compares with an average of 2.8 bcfd in July and 10.4 bcfd in August 2021.

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Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 97.6 bcfd so far in August from a record 96.7 bcfd in July.

On a daily basis, however, output was on track to drop by 2.7 bcfd over the past few days from a record 98.3 bcfd on Monday to a preliminary near one-month low of 95.6 bcfd on Thursday. Preliminary data is often revised.

With less hot weather expected, Refinitiv projected average U.S. gas demand, including exports, would fall from 101.9 bcfd this week to 97.7 bcfd next week. Those forecasts were higher than Refinitiv's outlook on Wednesday.

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Reporting by Scott DiSavino; Editing by David Holmes, Jonathan Oatis, Barbara Lewis and Richard Chang

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