U.S. natural gas futures slid on Monday as output slowly rises and the weather turns milder than normal for this time of year, which should allow utilities to start injecting gas into storage next week – about a week earlier than usual.
That price decline came even though global gas prices continued to trade around eight times over U.S. futures, keeping demand for U.S. liquefied natural gas (LNG) exports at a record high.
U.S. LNG exports have remained strong for months as global oil and gas prices traded at or near record highs – especially since Russia’s invasion of Ukraine on Feb. 24 stoked global 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 March 7, traders got over their worries about supplies and started to take profits as gas flows from Russia stayed high and LNG imports poured in from around the world.
Volatility for European futures was at an all-time high with prices down 10% so far on Monday. Last week, prices dropped by a record 35% after soaring by a record 122% in the prior 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 fell 5.1 cents, or 1.1%, to $4.674 per mmBtu at 9:29 a.m. EDT (1329 GMT).
With most energy prices dropping last week, U.S. gas speculators cut their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges for a fifth week in a row for the first time since November, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report. That cut their net long gas positions to the lowest level since December.
U.S. gas futures remain mostly shielded from global 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 93.1 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 milder spring weather, Refinitiv projected average U.S. gas demand, including exports, would drop from 112.0 bcfd this week to 97.3 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Friday.
The amount of gas flowing to U.S. LNG export plants rose to 12.77 bcfd so far in March from 12.43 bcfd in February and a record 12.44 bcfd in January. The United States 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.