Natural gas forecast: LNG terminal outage pressures US prices, bolsters EU prices

US Henry Hub natural gas prices plummeted on reduced US export capacity; a Texas LNG facility may take months to get back online after an explosion and AUD/USD approaches a critical point of resistance near the May low.

US natural gas prices plummeted overnight as traders digested news of a damaged liquified natural gas terminal out of Texas. The Quintana Island facility near Houston suffered a catastrophic explosion last week, an event that will significantly reduce US export capacity of LNG. The current-month Henry Hub price fell 16.49% after the terminal’s operator, Freeport LNG, stated that it may take months to complete repairs.

European gas prices surged on the news, highlighting the importance of US energy imports to the 27-member EU bloc. The European Union started importing as much natural gas as it could following Russia’s invasion of Ukraine, which brought sanctions against Moscow and its energy products. The news represents a major obstacle as the EU attempts to build up storage levels before the winter months when cold temperatures increase energy needs.

There also lies ahead an increased risk for further disruptions to US LNG export capacity. The Atlantic hurricane season began June 01. Previously, major hurricanes have impacted, sometimes severely, the ability to export LNG and other energy products. Moreover, the US National Oceanic Atmospheric Administration (NOAA) predicts an “above-normal” 2022 hurricane season, with the potential for 6 to 10 hurricanes, 3 to 6 of those having the potential to become major hurricanes.

A damaging event to an export terminal would likely further hinder export capacity, which would pressure US prices but send European prices higher. The move lower in US prices is especially telling, given that it is occurring during a major US heatwave, an event that typically causes prices to rise. It speaks to the outsized impact that exports play in the US market. The specific Texas LNG facility could process over 2 billion cubic feet per day. That 2 billion cubic feet per day are now contained to the US domestic market for the time being, which should help to keep prices down.

Natural gas technical outlook

Prices fell to trendline support before rising modestly this morning. The 50-day Simple Moving Average was taken out during the overnight move with ease. The Relative Strength Index (RSI) crossed below its midpoint, while MACD is tracking to do the same. A drop below trendline support would open a path for prices to test a level of support dating back to the October 2021 swing high. The 100-day SMA sits below that support level.

Natural gas daily chart

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