US natgas prices see best year since 2016 as LNG export demand surges

Dec 31 (Reuters) - U.S. natural gas futures retreated on Tuesday as traders booked profits after prices surged to a two-year peak in the previous session, though the market looked set for its biggest annual jump since 2016 fueled by an increase in gas flowing to liquefied natural gas $(LNG)$ export plants on higher overseas demand.

Front-month gas futures NGc1 for February delivery on the New York Mercantile Exchange were 22.40 cents lower, or 5.7%, to $3.71 per million British thermal units as of 9:31 a.m. EST, having surged to its highest since Jan. 2023 on Monday

"Gas prices yesterday jumped up on the revised and colder January weather forecast during the weekend, and the decline now is, I believe, a correction from the sharp increases, the magnitude of which may not be fully justified by the prolific gas production in the last a few months " said Zhen Zhu, managing consultant at C.H. Guernsey and Company in Oklahoma City.

Financial firm LSEG estimated 492 heating degree days over the next two weeks, compared with 499 estimated on Monday. It also forecast average gas demand in the Lower 48, including exports, jumping from 118.9 bcfd this week to 144.4 bcfd next week.

LSEG said average gas output in the Lower 48 U.S. states rose to 103.3 bcfd so far in December, from 101.5 bcfd in November. That compares with a record 105.3 bcfd in December 2023.

"Gas prices still have room to head higher in the short to medium terms due to potentially substantial increase in demand in January and February and the possible wellhead freeze offs. No matter what happens, winter weather uncertainty will continue to bring volatilities to gas price in the next couple of months especially in January," Zhu added.

Natural gas prices have surged nearly 50% in 2024, its biggest annual gain since 2016. The contract also added more than 10% so far this month, its second consecutive monthly gain.

"The forward curve shows prices higher in 2025 than it was in 2024. A lot of that is because the storage overhang has been able to work down the expectations. Producers don't overdo it, and we should see the strong demand from power burns and exports,” said Robert DiDona, president of Energy Ventures Analysis.

"Overall prices in 2025 should average higher than they should average in 2024 because of the tighter supply-demand balance picture."

The amount of gas flowing to the eight big U.S. LNG export plants rose to an average of 15.16 billion cubic feet per day (bcfd) so far in December from 13.6 bcfd in November, according to LSEG data.

Venture Global's LNG tanker, Venture Bayou departed from the Plaquemines export plant in Louisiana for Germany last week, carrying the first LNG cargo produced at the facility.

Following this, Cheniere Energy LNG.N on Monday said it produced first LNG from a new Texas facility, becoming the second new U.S. export plant this year to increase supplies of the superchilled gas.

The U.S. is the world's largest exporter of LNG and production of superchilled gas from Cheniere's Stage 3 and Venture Global's Plaquemines plants are expected to keep the U.S. as the top exporter of LNG in 2025.

Dutch and British wholesale gas prices inched up on Tuesday morning on expectations for colder weather later this week and as Russian gas supply to Europe via Ukraine was expected to stop. NG/EU

(Reporting by Anushree Mukherjee, Anmol Choubey and Swati Verma in Bengaluru)

((anushree.ashishMukherjee@thomsonreuters.com;))

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