U.S. natural gas futures rose about 2% on Friday as cold weather was set to cut output to its lowest in a month and as near-record liquefied natural gas (LNG) exports caused utilities to pull so much gas out of storage that stockpiles were now 16% below normal for this time of year.
That increase came despite forecasts for output to rise and the weather to remain mild over the next two weeks, which should allow utilities to start adding gas back into storage in about two weeks – about a week earlier than usual.
Last week’s storage withdrawal cut stockpiles to 1.519 trillion cubic feet (tcf), or 16.0% below the five-year (2017-2021) average of 1.809 tcf for this time of the year. That was the biggest percentage stockpiles were below normal levels since May 2019.
U.S. LNG exports have been strong in recent months because global oil and gas prices have traded at or near record highs – especially since Russia’s invasion of Ukraine on Feb. 24 stoked significant energy supply concerns. Russia is the world’s second-biggest gas producer behind the United States.
But after European gas futures soared to an all-time high over $106 per million British thermal units (mmBtu) on Monday, traders got over their worries about supplies and started to take profits as gas flows from Russia remained high and LNG imports poured in from around the world.
In their most volatile couple of weeks ever, European futures were on track to drop by a record 39% this week after soaring by a record 122% last week.
Before Russia’s invasion, the United States worked with other countries to ensure gas supplies, mostly from LNG, would keep flowing to Europe. Russia usually provides around 30% to 40% of Europe’s gas, which totaled about 16.3 billion cubic feet per day (bcfd) in 2021.
U.S. front-month gas futures rose 9.8 cents, or 2.1%, to $4.729 per mmBtu at 9:05 a.m. EST (1405 GMT).
That put the contract on track to fall about 6% this week after it rose about 12% last week.
U.S. gas futures remain shielded from record European prices because the United States has all the fuel it needs for domestic use and the country’s ability to export more 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 would not be able to produce much more of the supercooled fuel anytime soon.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states was on track to rise to 93.3 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.
On a daily basis, however, gas output was on track to drop to a one-month low of 91.5 bcfd on Friday as cold weather in some producing basins reduces output. Traders noted the output data was preliminary and has mostly been revised higher over the past several days.
With the coming of milder spring weather, Refinitiv projected average U.S. gas demand, including exports, would slide from 112.5 bcfd this week to 111.8 bcfd next week before dropping to 98.6 bcfd in two week.