U.S. natural gas futures climbed 3% to a one-week high on Tuesday on forecasts for much colder weather and higher heating demand over the next two weeks than previously expected.
Traders noted the price increase came despite the continued slow return of U.S. production from cold weather-related reductions over the past month, and an 8% drop in European gas futures as some Russian troops return to base, easing tensions with Ukraine.
Over the past month or so, the U.S. has worked with other nations to ensure that gas supplies—mostly from liquefied natural gas (LNG)—would keep flowing to Europe in case Russia cuts off supplies to the rest of the continent.
If Russia invades Ukraine, the U.S. and Europe have said they would sanction Russia, and Russia would likely cut at least some gas exports to Europe. Russia provides around 30%-40% of Europe’s gas supplies, totaling about 16.3 billion cubic feet per day (bcfd) in 2021.
Since the start of the year, however, the U.S. gas market has focused more on changes in U.S. weather and domestic supply and demand, rather than what is happening around the world. So far in 2022, U.S. gas followed European prices only about a third of the time versus two-thirds in the fourth quarter of 2021.
U.S. front-month gas futures for March delivery rose 12.5 cents, or 3.0%, to $4.320 per million British thermal units (mmBtu) at 8:25 a.m. ET (1325 GMT), putting the contract on track for its highest close since Feb. 4.
In the spot market, frigid weather and high heating demand in the U.S. Northeast this year have kept next-day power and gas prices in New York and New England at or near their highest levels since January 2018.
Data provider Refinitiv said average output in the U.S. Lower 48 states fell from a record 97.3 bcfd in December to 94.0 bcfd in January and 92.5 bcfd so far in February as cold weather froze wells in several producing regions.
On a daily basis, however, output soared to 95.2 bcfd on Feb. 11, its highest since Jan. 1. Output has been rising almost daily since it dropped to 86.3 bcfd during a winter storm on Feb. 4, its lowest since February 2021.
Even though the weather is forecast to be colder than previously expected, it is still on track to be less cold next week than this week with the coming of spring-like weather in some areas.
Refinitiv projected average U.S. gas demand, including exports, would drop from 122.8 bcfd this week to 118.8 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Monday due to the expected colder weather.
The amount of gas flowing to U.S. LNG export plants rose to an average of 12.7 bcfd so far in February, which would top January’s monthly record of 12.4 bcfd, as liquefaction trains at Venture Global LNG’s Calcasieu Pass export plant in Louisiana enter service.
A tanker arrived at Calcasieu on Feb. 7 and will likely leave with the plant’s first cargo soon.