U.S. natural gas futures slid about 3% on Tuesday on forecasts for milder than normal weather and lower heating demand over the next two weeks than previously expected, which should allow utilities to start injecting gas into storage next week – about a week earlier than usual.
That price decline came even though European gas prices shot up about 8% so far on Tuesday after Eastern Europe started pulling gas from the West.
European gas was trading about eight times over U.S. futures, keeping demand for U.S. liquefied natural gas (LNG) exports at 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 after the United States.
But U.S. gas futures remain 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 will not be able to produce much more of the supercooled fuel anytime soon.
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 18.0 billion cubic feet per day (bcfd) in 2021.
U.S. front-month gas futures fell 12.5 cents, or 2.7%, to $4.533 per million British thermal units at 9:04 a.m. EDT (1304 GMT).
The premium of futures for May over April rose to a record high of 5.1 cents.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states was on track to rise to 93.0 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 milder spring weather coming, Refinitiv projected average U.S. gas demand, including exports, would drop from 109.8 bcfd this week to 94.4 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Monday.
The amount of gas flowing to U.S. LNG export plants rose to 12.70 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 12.7 bcfd of gas into LNG.
Traders said U.S. LNG exports would remain near record levels so long as global gas prices trade 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 Russia could cut European supplies.
Gas futures traded near $39 per mmBtu in Europe and $37 in Asia, compared with around $5 in the United States.
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.