U.S. natural gas futures fell more than 5% to a one-week low on Tuesday on rising output and forecasts for milder weather and lower heating demand over the next two weeks than previously expected.
That U.S. price drop followed a similar 5% decline in European gas futures. Global prices, however, were still about 13 times higher than U.S. futures, keeping demand for U.S. liquefied natural gas (LNG) exports strong as the Russia-Ukraine conflict stokes energy supply concerns.
U.S. gas futures remain shielded from record European prices because the United States, the world’s biggest gas producer, has all the fuel it needs for domestic use and the country’s ability to export more liquefied natural gas (LNG) is limited by capacity constraints.
The United States is already producing LNG near full capacity, so no matter how high global gas prices rise, it won’t be able to produce much more of the supercooled fuel anytime soon.
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 massive gains in global energy prices in recent weeks. Spurred by Russia’s invasion of Ukraine on Feb. 24, European gas futures have spiked as much as 280%, hitting a record high on Monday, while U.S. crude futures jumped as much as 42% to their highest level since 2008.
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 were down 25.5 cents, or 5.3%, to $4.578 per million British thermal units (mmBtu) at 8:37 a.m. EST (1337 GMT), putting the contract on track for its lowest close since Feb. 28.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states was on track to rise to 93.5 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 the coming of cooler weather next week, Refinitiv projected average U.S. gas demand, including exports, would rise from 109.7 bcfd this week to 110.0 bcfd next week. The forecast for next week, however, was much lower than Refinitiv’s outlook on Monday.
The amount of gas flowing to U.S. LNG export plants has risen to 12.57 bcfd so far in March, from 12.43 bcfd in February and a record 12.44 bcfd in January. The United States only has the capacity to turn about 12.5 bcfd of gas into LNG. The rest of the fuel flowing to the facilities is used to operate the plants.
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 with the threat that Russia could cut gas supplies to Europe.
Gas futures traded near $68 per mmBtu in Europe and $52 in Asia, compared with just $5 in the United States.