Natural gas price: after the dramatic plummet, where to next?

Natural gas price has paused on its downtrend after its dramatic plunge on Tuesday. An update regarding the temporary closure of the Freeport LNG facility was largely behind the day’s decline of close to 20%. For the first time in about a month, US futures dropped below the previously steady zone of $7.50 per million  British thermal units (mBtu). As at the time of writing, the commodity was trading at $7.29.

Fundamentals

About a week ago, US natural gas futures dropped below the psychologically crucial level of $9.00 per mBtu after hitting a fresh 14-year high of $9.66. The decline was the market’s reaction to the fire reported at the Freeport LNG facility in Quintana Island, Texas on Wednesday. Subsequently, the fuel export facility was set to remain shut for about three weeks.

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It is important to note that Freeport LNG accounts for about 2% of the total US natural gas production, which equates to 2 billion cubic feet (Bcf) per day. The temporary shutting down of the facility meant that domestic buyers will be able to build up on inventories and ease on the tight supplies that have pushed prices to levels last recorded over a decade ago.

Even so,natural gas price held steady above the critical support zone of $8.00 as analysts predicted that the three-week period wouldn’t be enough to cover the supply deficit. According to EIA, stocks are close to 15% below its 5-year average during this time of year.  

However, on Tuesday, the Freeport LNG facility announced that it will remain closed for about 90 days. In a statement the company noted, “Completion of all necessary repairs and a return to full plant operations is not expected until late 2022”. This means that the US market supply will now increase by 2 Bcf per day.   

At the current price level, the bulls are keen on defending the critical support zone of $7.00. Later in the week, investors will be eyeing the US weekly inventories data scheduled for release on Thursday for further cues on the status of natural gas supply in the country. In the previous release, stocks were 398 Bcf below a similar period in 2021. Bullish figures will likely yield a rebound to around $7.50.