Natural gas futures drop 3% on Freeport LNG work and cooler weather

U.S. natural gas futures fell for a second straight session Monday as weather models turned cooler and export demand weakened on planned maintenance at the Freeport LNG terminal in Texas, creating a dual supply-demand imbalance that may keep prices under pressure in the near term.

"The market is caught between a bearish weather outlook and a temporary loss of LNG export demand, which together are overwhelming any support from storage deficits," said Omar Tariq, a commodities analyst covering oil and gas markets.

The front-month contract on the New York Mercantile Exchange settled at $2.41 per million British thermal units, down 7.5 cents, or 3%, on the session. The decline extended last week's losses, which pushed prices below the 50-day moving average for the first time since late June.

Cooling demand is expected to fall below the 10-year average over the next two weeks as a ridge of high pressure shifts eastward, according to the National Weather Service's latest outlook. The revision prompted traders to unwind long positions built during a late-June heat wave that had briefly pushed prices above $2.70.

At the same time, Freeport LNG — one of the largest U.S. liquefaction facilities — began a scheduled maintenance event that will reduce feed gas flows by roughly 2 billion cubic feet per day, according to pipeline data. The facility, which can process about 2.4 Bcf/d of natural gas, typically accounts for roughly 15% of total U.S. LNG export capacity.

The combination of weaker domestic consumption and reduced export demand creates a near-term surplus that storage operators will need to absorb. The U.S. Energy Information Administration reported working gas in storage at 3.09 trillion cubic feet as of the week ended July 4, about 12% above the five-year average for this time of year.

The last time Freeport LNG underwent similar maintenance in the spring, natural gas prices fell roughly 8% over a two-week period as the market absorbed the excess supply. A repeat of that pattern would push prices toward the $2.20 level, a zone that has acted as support since April.

For producers, sustained prices below $2.50 per MMBtu pressure margins at gas-weighted operators, particularly those with higher breakeven costs in the Haynesville and Marcellus shales. Several exploration and production companies have already announced plans to curtail output if prices remain weak through the third quarter.

The maintenance at Freeport is expected to last approximately two to three weeks, after which feed gas demand should normalize. Until then, the market faces a test of whether storage capacity and producer curtailments can absorb the temporary glut without a sharper price decline.

This article is for informational purposes only and does not constitute investment advice.