UPDATE 1-US natural gas prices drop 7% on milder weather forecasts, small storage draw

Adds EIA storage report, latest prices

By Scott DiSavino

Jan 3 (Reuters) - U.S. natural gas futures dropped about 7% to a two-week low on Friday on a smaller-than-expected weekly storage draw and forecasts for milder weather in mid-January than previously expected.

That price drop occurred despite near-record gas flows to U.S. liquefied natural gas (LNG) export plants, soaring gas prices in Europe and forecasts for colder-than-normal weather and higher-than-usual heating demand in the U.S. over the next two weeks.

The U.S. Energy Information Administration (EIA) said utilities pulled 116 billion cubic feet (bcf) of gas out of storage during the week ended Dec. 27.

That was less than the 124-bcf withdrawal analysts forecast in a Reuters poll and compares with a decrease of 35 bcf during the same week last year and a five-year average draw of 104 bcf for this time of year. EIA/GAS NGAS/POLL

Front-month gas futures NGc1 for February delivery on the New York Mercantile Exchange were down 25.8 cents, or 7.1%, to $3.402 per million British thermal units (mmBtu) at 10:36 a.m. EST (1536 GMT), putting the contract on track for its lowest close since Dec. 18.

In a volatile gas market, that would only be the biggest daily percentage loss since the front-month fell by 7.7% on Dec. 31.

For the week, the contract was down about 3% after losing about 6% last week.

In the spot market, meanwhile, frigid weather moving across parts of the U.S. boosted next-day prices to their highest levels since January 2024 at the Henry Hub benchmark NG-W-HH-SNL in Louisiana, the Eastern Gas hub in Pennsylvania NG-PCN-APP-SNL and in Chicago NG-CG-CH-SNL.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the Lower 48 U.S. states has risen to 105.0 billion cubic feet per day (bcfd) so far in January, up from 103.8 bcfd in December. That compares with a record 105.3 bcfd in December 2023.

Meteorologists projected weather in the Lower 48 states would remain mostly colder than normal through Jan. 15 before turning nearly normal in the Jan. 16-18 period.

With colder weather coming, LSEG forecast average gas demand in the Lower 48, including exports, would jump from 119.5 bcfd this week to 146.3 bcfd next week before easing to 145.0 bcfd in two weeks. The forecast for next week was higher than LSEG's outlook on Thursday.

The amount of gas flowing to the eight big U.S. LNG export plants has risen to an average of 15.0 bcfd so far in January, up from 14.4 bcfd in December. That compares with a monthly record high of 14.7 bcfd in December 2023.

On a daily basis, LNG feedgas was on track to reach a record 15.200 bcfd on Friday, with flows to Venture Global's 2.6-bcfd Plaquemines plant under construction in Louisiana headed for a record 0.660 bcfd, according to LSEG.

That compares with the current daily all-time high of 15.195 bcfd in December 2023.

Despite increases over the past month, LNG feedgas - the fastest growing source of U.S. gas demand growth in recent years - eased to 13.07 bcfd in 2024 from 13.09 bcfd in 2023, the first annual decline since the country started exporting LNG from the Lower 48 states in 2016.

The U.S. became the world's biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar, as much higher global prices feed demand for more exports due in part to supply disruptions and sanctions linked to Russia's invasion of Ukraine in February 2022.

Gas was trading at a 13-month high of around $15 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe TRNLTTFMc1 due to cold weather and the expiration of a deal at the end of 2024 that allowed Russia to pipe gas to Europe across Ukraine. NG/EU

text_section_type="notes">For gas data on the LSEG terminal type ENERGY in the search bar and then go to the GAS drop down and the NORTH AMERICA drop down.

For Interactive Map, type 'Interactive Map' in the box at upper left of the LSEG terminal

For graphics on Baker Hughes rig counts, see: http://graphics.thomsonreuters.com/15/rigcount/index.html

For next-day SNL U.S. gas prices, see: 0#SNL-NG

For next-day SNL U.S. power prices, see: 0#SNL-PWR

For U.S. natgas price and storage polls, see: NGAS/POLL

For U.S. nuclear power outages, see: NUKE/

For U.S. Northwest hydro power report, see: NWRFC

For U.S./Canada natural gas rig count vs Henry Hub futures price, see: http://tmsnrt.rs/2eT9k44

For the U.S. natural gas speed guide, see: USGAS

For the U.S. power speed guide, see: USPOWER

To determine CFTC managed money net position add (NYMEX Henry Hub options and futures combined 3023651MNET) plus (ICE Henry Hub options and futures combined 3023391MNET divided by four) plus (NYMEX Henry Hub swaps options and futures combined 303565BMNET divided by four) plus (NYMEX Henry Hub penultimate gas swaps 303565CMNET divided by four)

NYMEX Henry Hub options and futures combined 0#3CFTC023651

NYMEX Henry Hub futures only 0#1CFTC023651

ICE Henry Hub options and futures combined 0#3CFTC023391

NYMEX Henry Hub swaps options and futures combined 0#3CFTC03565B

NYMEX Henry Hub Penultimate gas swaps 0#3CFTC03565C

(Reporting by Scott DiSavino
Editing by Christina Fincher and Paul Simao)

((scott.disavino@thomsonreuters.com; +1 332 219 1922; Reuters Messaging: scott.disavino.thomsonreuters.com@reuters.net/))