U.S. natural gas futures gained about 3% to a one-month high on Friday as the U.S. market continued to follow massive price swings in global gas and oil trading with the Russia-Ukraine conflict stoking energy supply concerns.
U.S. gas prices also gained support from the latest U.S. weather forecasts calling for more cold and higher heating demand in mid-March and growing worries that extreme cold so far this winter has already forced U.S. utilities to pull so much gas out of storage that stockpiles were at their lowest versus the five-year average since May 2019.
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, with U.S. gas prices moving in the opposite direction of Europe more than half the time.
But it has been hard to ignore the massive gains in global energy prices seen this week – especially since those higher prices should keep demand for U.S. liquefied natural gas (LNG) strong for months to come. Since Russia invaded Ukraine on Feb. 24, European gas futures have soared over 120% to a record high and U.S. crude jumped over 20% to its highest since 2008.
No matter how high global gas prices rise, however, the United States, the world’s biggest gas producer, cannot make much more LNG since it is already producing the supercooled fuel at near full capacity.
The United States worked with other countries, before the Russian invasion, 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 13.6 cents, or 2.9%, to $4.858 per million British thermal units (mmBtu) at 8:56 a.m. EST (1356 GMT), putting the contract on track for its highest close since Feb. 3.
That puts the contract up about 9% this week, which would be the first time it rose for three weeks in a row since October 2021.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states was on track to rise to 93.4 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.
Refinitiv projected average U.S. gas demand, including exports, would drop from 122.0 bcfd this week to 107.8 bcfd next week with the coming of milder weather before jumping to 118.3 bcfd in two weeks when temperatures are expected to drop again.
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 12.30 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 near $61 per mmBtu in Europe and $44 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.