UPDATE 1-US natgas prices see biggest annual drop since 2006

(Adds latest prices) Dec 29 (Reuters) - U.S. natural gas futures slipped on Friday and recorded their biggest percentage fall for the year since 2006, under pressure from record production, ample inventories in storage and relatively mild weather conditions. Front-month gas futures for February delivery on the New York Mercantile Exchange settled 4.3 cents, or 1.7% lower, at $2.51 per million British thermal units. The front-month contract fell nearly 44% in 2023, its first annual fall in four years, which is also its biggest fall since 2006. The contract has also lost more than 10% so far this month in a second consecutive monthly loss. Prices have fallen sharply from around $10 per mmBtu reached last year on a Russia-Ukraine war-fueled rally, but as those concerns eased, futures started 2023 at around the $4 level before declining further as drillers ramped up production. Prices are "reflecting very bearish market fundamentals, which are record production, weak demand thanks to the warmer-than-normal weather, and weak foreign demand as well," said Zhen Zhu, managing consultant at C.H. Guernsey and Company in Oklahoma City. "We are projecting a storage level at the top of the five-year band at the end of the coming injection season," Zhen added, saying that if this turns out to be true, prices will have no hope of going anywhere in the new year unless abnormal weather and production conditions prevail. Data from LSEG showed that average gas output in the Lower 48 U.S. states has risen to 103.5 bcfd so far in 2023 from a record 98.4 bcfd in 2022. The continental United States also entered the winter heating season with the most natural gas in storage since 2020, the U.S. Energy Information Administration (EIA) said earlier this month. U.S. utilities pulled 87 billion cubic feet (bcf) of natural gas out of storage last week, according to the weekly EIA report. Stockpiles stood at 3.490 trillion cubic feet (tcf), about 11.1% above the same week a year ago and 10% above the five-year average. LSEG forecast U.S. gas demand in the Lower 48, including exports, at 129.7 billion cubic feet per day (bcfd) this week, up from last week's 119.5 bcfd. Demand was further projected to rise to 136.9 bcfd during next week as forecasts for January get colder. "The natgas market's outlook depends on what kind of weather we're going to have in the first quarter," said Thomas Saal, senior vice president for energy at StoneX Financial. Gas flows to the seven big U.S. LNG export plants have risen to an average of 14.6 bcfd so far in December, up from a record 14.3 bcfd in November. Week ended Week ended Year ago Five-year Dec 22 Dec 15 Dec 22 average Actual Actual Dec 22 U.S. weekly natgas storage change (bcf): -87 -87 -195 -123 U.S. total natgas in storage (bcf): 3,490 3,577 3,142 3,174 U.S. total storage versus 5-year average 10.0% 8.5% Global Gas Benchmark Futures ($ per mmBtu) Current Day Prior Day This Month Prior Year Five Year Last Year Average Average 2022 (2017-2021) Henry Hub 5.77 6.54 2.89 2.53 2.47 Title Transfer Facility (TTF) 36.68 40.50 7.49 10.50 11.03 Japan Korea Marker (JKM) 32.34 34.11 8.95 11.73 11.87 LSEG Heating (HDD), Cooling (CDD) and Total (TDD) Degree Days Two-Week Total Forecast Current Day Prior Day Prior Year 10-Year 30-Year Norm Norm U.S. GFS HDDs 422 416 488 399 413 U.S. GFS CDDs 1 1 2 5 4 U.S. GFS TDDs 423 417 490 404 417 LSEG U.S. Weekly GFS Supply and Demand Forecasts Prior Week Current Next Week This Week Five-Year Week Last Year (2018-2022) Average For Month U.S. Supply (bcfd) U.S. Lower 48 Dry Production 98.6 94.2 108.8 108.3 108.3 U.S. Imports from Canada8 10.1 9.1 8.5 8.9 9.3 U.S. LNG Imports 0.0 0.2 0.0 0.0 0.0 Total U.S. Supply 108.7 103.5 117.3 117.1 117.6 U.S. Demand (bcfd) U.S. Exports to Canada 2.1 3.2 3.4 3.4 3.4 U.S. Exports to Mexico 5.0 5.0 5.4 4.4 4.4 U.S. LNG Exports 12.1 8.6 14.7 14.3 14.0 U.S. Commercial 20.4 14.6 12.7 15.3 17.2 U.S. Residential 35.6 24.7 20.2 25.6 29.6 U.S. Power Plant 34.9 28.6 30.9 33.0 34.0 U.S. Industrial 27.1 25.0 24.1 25.3 25.7 U.S. Plant Fuel 5.4 5.3 5.4 5.3 5.3 U.S. Pipe Distribution 2.7 2.9 2.6 2.9 3.1 U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1 Total U.S. Consumption 126.2 101.2 96.0 107.5 115.0 Total U.S. Demand 145.4 118.0 119.5 129.7 136.9 U.S. Northwest River Forecast Center (NWRFC) at The Dalles Dam Current Day Prior Day 2023 2022 2021 % of Normal % of Normal % of Normal % of Normal % of Normal Forecast Forecast Actual Actual Actual Apr-Sep 79 80 83 107 81 Jan-Jul 79 79 77 102 79 Oct-Sep 81 81 76 103 81 U.S. weekly power generation percent by fuel - EIA Week ended Week ended Week ended Week ended Week ended Dec 29 Dec 22 Dec 15 Dec 8 Dec 1 Wind 12 11 12 10 12 Solar 2 3 3 3 2 Hydro 6 6 5 6 7 Other 2 2 2 2 2 Petroleum 0 0 0 0 0 Natural Gas 40 41 40 42 39 Coal 17 17 17 17 15 Nuclear 20 20 21 20 23 SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu) Hub Current Day Prior Day Henry Hub 2.55 2.63 Transco Z6 New York 1.79 1.80 PG&E Citygate 3.45 3.58 Eastern Gas (old Dominion South) 1.69 1.59 Chicago Citygate 2.12 2.10 Algonquin Citygate 2.12 1.88 SoCal Citygate 2.78 2.98 Waha Hub 1.62 2.16 AECO 1.67 1.64 SNL U.S. Power Next-Day Prices ($ per megawatt-hour) Hub Current Day Prior Day New England 31.25 28.00 PJM West 29.00 27.25 Ercot North 23.00 25.75 Mid C 35.00 35.00 Palo Verde 39.50 39.50 SP-15 40.50 40.50 (Reporting by Sherin Elizabeth Varghese, Ashitha Shivaprasad and Swati Verma in Bengaluru; Editing by Jane Merriman and Mark Porter)