U.S. natural gas futures jumped over 7% to a fresh seven-year high on Monday on forecasts power generators will burn more of the fuel this week than previously expected and as record global gas prices keep demand for more U.S. liquefied natural gas (LNG) exports strong.
Even though the weather is expected to remain milder than normal on average across the United States through mid October, lingering pockets of warm were still expected to keep air conditioners humming in some parts of the country this week.
Gas prices around the world have soared to all-time highs for several days in a row as low stockpiles in Europe and insatiable demand in Asia cause the two regions to compete for spare LNG cargoes. Prices in Europe jumped over 80% in September, rising a seventh month in a row, as the amount of gas in storage in some European countries fell to dangerously low levels ahead of the winter heating season.
Analysts have said that gas stockpiles in some European countries were over 20% below normal for this time of year. In the United States, meanwhile, inventories were expected to reach about 3.5 trillion cubic feet (tcf) by the end of October. Analysts said that should be enough for the U.S. winter heating season even though that amount would fall short of the 3.7 tcf five-year (2016-2020) average for that time of year.
Front-month gas futures rose 40 cents, or 7.1%, to $6.019 per million British thermal units at 9:50 a.m. EDT (1350 GMT), putting the contract on track for its highest close since February 2014.
Speculators boosted their net long positions on the New York Mercantile and Intercontinental Exchanges last week for the first time in three weeks as record global prices helped the U.S. front-month climb over 9% in volatile trade, according to data from the Commodity Futures Trading Commission (CFTC).
Data provider Refinitiv said gas output in the U.S. Lower 48 states rose to an average of 91.7 billion cubic feet per day (bcfd) so far in October from 91.1 bcfd in September. That compares with a monthly record of 95.4 bcfd in November 2019.
Refinitiv projected that U.S. gas demand, including exports, would slide from an average of 85.0 bcfd this week to 83.6 bcfd next week as the weather turns milder. Those forecasts were higher than Refinitiv expected on Friday.
With gas prices at or near record highs of $33 per mmBtu in Europe and $31 in Asia, versus around $6 in the United States, traders said buyers around the world would keep purchasing all the LNG the United States could produce.
With Berkshire Hathaway Energy’s Cove Point LNG export plant expected to remain shut for another week for planned maintenance, Refinitiv said the amount of gas flowing to U.S. LNG export plants slipped modestly to an average of 10.3 bcfd so far in October from 10.4 bcfd in September.
But no matter how high global prices rise, the United States only has the capacity to turn about 10.5 bcfd of gas into LNG. Global markets will have to wait until later this year to get more from the United States when the sixth liquefaction train at Cheniere Energy Inc’s Sabine Pass and Venture Global LNG’s Calcasieu Pass in Louisiana are expected to start producing LNG in test mode.