U.S. natural gas futures climbed about 2% to a three-week high on Wednesday on forecasts for colder weather and higher heating demand over the next two weeks than previously expected.
That price increase came despite a slow rise in U.S. output and as European gas prices declined after Russian gas giant Gazprom PAO’s Nord Stream 2 cleared a major hurdle.
Allowing Nord Stream 2 to pump Russian gas to Germany will not threaten supplies to the European Union, the German Economy Ministry said on Tuesday, moving the disputed pipeline closer to providing much needed supplies to Europe for the winter heating season.
Gas prices around the world have soared to record highs over the past couple of months as utilities scramble for liquefied natural gas (LNG) cargoes to refill dangerously low stockpiles in Europe and meet strong demand in Asia where energy shortfalls have caused power blackouts in China.
U.S. futures rose to a 12-year high in early October along with those global gas prices on expectations demand for U.S. LNG exports would remain strong. And with gas prices in Europe and Asia trading about five times higher than in the United States, traders said demand for U.S. LNG exports will remain strong.
But U.S. export plants were already producing LNG near full capacity so no matter how high global prices rise, the United States can’t export much more of the super-cooled fuel.
In addition, the United States has more than enough gas in storage for the winter and ample production to meet domestic and export demand.
Analysts expect U.S. gas inventories will reach 3.6 trillion cubic feet (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.
U.S. stockpiles were currently about 4% below the five-year (2016-2020) average for this time of year. In Europe, analysts say stockpiles were about 15% below normal.
On its last day as the front-month, gas futures for November delivery rose 11.5 cents, or 2.0%, to $5.997 per million British thermal units (mmBtu) at 8:21 a.m. EDT (1221 GMT). That puts the contract on track for its highest close since Oct. 5, when it settled at its highest since December 2008.
The December contract, which will soon be the front-month, was up 8 cents to $6.08 per mmBtu.
The premium of futures for December over November has been on a wild ride this month, rising from 14 cents at the start of the month to an 11-year high of 30 cents on Oct. 20 before dropping back to just 9 cents on Wednesday.
Data provider Refinitiv said output in the U.S. Lower 48 states has averaged 92.3 billion cubic feet per day (bcfd) so far in October, up from 91.1 bcfd in September. That compares with a monthly record of 95.4 bcfd in November 2019.
Refinitiv projected average U.S. gas demand, including exports, would rise from 90.7 bcfd this week to 92.7 bcfd next week as more homes and businesses turn on their heaters. Those forecasts were higher than Refinitiv projected on Tuesday.
The amount of gas flowing to U.S. LNG export plants has averaged 10.5 bcfd so far in October, up from 10.4 bcfd in September.
With gas prices near $29 per mmBtu in Europe and $34 in Asia, versus around $6 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States can produce.