U.S. natural gas futures rose 4% to near a four-week high on Wednesday, gaining some rare support from surging global oil and gas prices as the Russia-Ukraine conflict stokes energy supply concerns.
Since the start of the year, the U.S. gas market has mostly shrugged off what was happening in Europe, focusing more on domestic weather and supply and demand.
In fact, U.S. prices have moved in the opposite direction of the European market most of the time in 2022, following European futures only about 40% of the time over the past couple of months. During the fourth quarter of 2021, U.S. futures followed European prices about two-thirds of the time.
But it’s hard to ignore the more than 50% increase in gas futures at the Title Transfer Facility (TTF) in the Netherlands earlier on Wednesday – the European benchmark is up about 100% since Russia invaded Ukraine on Feb. 24 – especially since those higher overseas prices will keep demand for U.S. liquefied natural gas (LNG) exports strong for months to come.
But no matter how high global gas prices rise, the United States, the world’s biggest gas producer, was already producing LNG near full capacity and could not make much more of the super-cooled fuel if it wanted to.
Before the Russian invasion, the United States worked with other countries to ensure that gas supplies, mostly from LNG, would keep flowing to Europe. Russia, the world’s second biggest gas producer, usually provides around 30% to 40% of Europe’s gas, which totaled about 16.3 billion cubic feet per day (bcfd) in 2021.
Front-month gas futures rose 18.3 cents, or 4.0%, to $4.756 per million British thermal units (mmBtu) at 9:22 a.m. EST (1422 GMT), putting the contract on track for its highest close since Feb. 3.
U.S. oil prices, meanwhile, jumped as much as 9% to their highest level since 2011 on Wednesday on concerns over supply disruptions from Russia, which is also one of the world’s top oil producers.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states was on track to rise to 93.2 bcfd in March from 92.5 bcfd in February as more oil and gas wells return to service after freezing earlier in the year. That compares with a monthly record of 96.2 bcfd in December.
With warmer weather coming, Refinitiv projected average U.S. gas demand, including exports, would drop from 122.2 bcfd this week to 108.1 bcfd next week.
The amount of gas flowing to U.S. LNG export plants slid from a record 12.44 bcfd in January to 12.43 bcfd in February and 11.73 bcfd so far in March.
Traders said demand for U.S. LNG would remain at or near record levels so long as global gas prices keep trading well above U.S. futures as utilities around the world scramble for cargoes to meet surging demand in Asia and replenish low inventories in Europe, especially with the threat that Russia could cut gas supplies to Europe.
Gas futures traded around $54 per mmBtu in Europe and $32 in Asia, compared with around $5 in the United States. But no matter how high global prices rise, the United States only has the capacity to turn about 12.5 bcfd of gas into LNG.
Global markets will have to wait until later this year when more of the 18 liquefaction trains under construction at Venture Global LNG’s Calcasieu Pass export plant in Louisiana start producing LNG. The first tanker carrying LNG from Calcasieu left early on Tuesday.