U.S. natural gas futures jumped over 10% on Wednesday as frigid weather cut output to its lowest since July 2021 and on forecasts that cold will continue to chill much of the country until at least the middle of February.
In addition to extreme cold, near-record U.S. liquefied natural gas (LNG) exports continued to support U.S. gas prices as global LNG buyers look for ways to send more fuel to Western Europe in case Russia invades Ukraine and cuts off gas supplies to the rest of the continent.
Front-month gas futures for March delivery rose 51 cents, or 10.7%, to $5.261 per million British thermal units (mmBtu) at 9:16 a.m. EST (1416 GMT), putting the contract on track for its highest close since Jan. 27 when it soared 46% to its highest settle since December 2008.
In the spot market, frigid weather and high heating demand since the start of 2022 in the U.S. Northeast has kept next-day power and gas prices in New York and New England at or near their highest levels since January 2018.
Analysts forecast the extreme cold would force utilities to keep pulling massive amounts of gas from storage in coming weeks, causing total inventories to fall to over 6% below average for this time of year.
Output, meanwhile, which has been slow to return from freezes in January, has dropped even further so far this month.
Data provider Refinitiv said output in the U.S. Lower 48 states fell to 92.0 billion cubic feet per day (bcfd) so far in February, down from an average of 92.9 bcfd in January after wells in several regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota, and the Appalachia in Pennsylvania, West Virginia and Ohio. Production hit an all-time monthly high of 97.3 bcfd in December 2021.
On a daily basis, preliminary data from Refinitiv showed output on Wednesday was on track to drop to 90.4 bcfd, which would be its lowest since July 2021.
With the weather expected to turn colder, Refinitiv projected average U.S. gas demand, including exports, would rise from 135.1 bcfd this week to 136.5 bcfd next week as homes and businesses crank up their heaters. Those forecasts, however, were lower than Refinitiv’s outlook on Tuesday.
The amount of gas flowing to U.S. LNG export plants has averaged 12.2 bcfd so far this month, down a bit from a monthly record of 12.4 bcfd in January.
Traders said demand for U.S. LNG will remain strong so long as global gas price remain well above U.S. futures as utilities around the world scramble for LNG cargoes to replenish low stockpiles in Europe and meet surging demand in Asia.
In recent weeks, European gas prices have spiked on concerns Russia may cut off supplies due to the Russia-Ukraine tensions. Russia supplied Europe with about 16.8 bcfd of gas in 2020, representing about 35% to 40% of the continent’s supply, according to analysts and U.S. energy data.
Gas prices were trading near $26 per mmBtu in Europe and $24 in Asia, compared with around $5 in the United States. But no matter how high global gas prices rise, the United States only has capacity to turn about 12.2 bcfd of gas into LNG. The rest of the gas flowing to LNG facilities is used to run plant equipment.