U.S. natural gas futures rose about 3% to a one-week high on Thursday on lower output, rising liquefied natural gas (LNG) exports and higher gas prices overseas that will keep demand for U.S. LNG strong.
Traders said prices rose despite forecasts for mild weather to continue through the end of October and ahead of a government report expected to show last week’s storage build was bigger than usual for a fifth week in a row.
Analysts forecast U.S. utilities added 94 billion cubic feet (bcf) of gas into storage during the week ended Oct. 8. That compares with an increase of 50 bcf in the same week last year and a five-year (2016-2020) average increase of 79 bcf.
If correct, last week’s injection would boost stockpiles to 3.382 trillion cubic feet (tcf), which would be 4.5% below the five-year average of 3.543 tcf for this time of year.
While utilities in Europe scramble to fill gas inventories before the winter heating season and governments around the world seek ways to control soaring prices, the situation in the United States is much calmer. Even though U.S. oil and gas prices are near multi-year highs and expected to rise this winter, there is a growing belief in the market that the United States will have more than enough fuel for the winter.
Analysts expect U.S. gas inventories will top 3.5 tcf by the start of the winter heating season in November, which they said would be a comfortable level even though it falls short of the 3.7 tcf five-year average. In Europe, analysts say stockpiles are about 15% below normal for this time of year.
Front-month gas futures were up 17.7 cents, or 3.2%, to $5.767 per million British thermal units (mmBtu) at 8:07 a.m. EDT (1207 GMT), putting the contract on track for its highest close since Oct. 5.
Data provider Refinitiv said gas output in the U.S. lower 48 states has risen to an average of 92.1 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.
Over the past few days, however, daily output fell to a four-week low of around 91.0 bcfd on lower production in the Haynesville shale.
Refinitiv projected average U.S. gas demand, including exports, would rise from 84.9 bcfd this week to 85.5 bcfd next week as the weather turns seasonally cooler and more homes and businesses turn on their heaters.
With gas prices near $33 per mmBtu in Europe and Asia, versus around $6 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States could produce.
Refinitiv said the amount of gas flowing to U.S. LNG export plants had slipped from an average of 10.4 bcfd in September to 10.3 bcfd so far in October due to short-term work at some Gulf Coast plants and earlier maintenance at Berkshire Hathaway Energy’s Cove Point LNG export plant in Maryland.
With the return of Cove Point on Tuesday, however, LNG feedgas was on track to rise to a one-month high of 11.1 bcfd on Wednesday.
But no matter how high global prices rise, the United States only has 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.