U.S. natural gas futures gained about 3% on Wednesday with U.S. liquefied natural gas (LNG) exports near record highs and forecasts for slightly cooler weather and higher demand next week than previously expected.
Overall, however, traders noted temperatures were expected to remain above normal through late March, which should allow utilities to start injecting gas into storage next week – about a week earlier than usual.
With Russia’s invasion of Ukraine continuing to stoke global energy supply concerns, European gas was trading about eight times higher than U.S. futures, keeping demand for U.S. LNG exports at or near record highs. 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 Feb. 24 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 on the New York Mercantile Exchange (NYMEX) rose 13.1 cents, or 2.9%, to $4.699 per million British thermal units (mmBtu) at 8:54 a.m. EDT (1254 GMT).
With the collapse of global energy prices from record or near record highs in early March – European gas down 64% and U.S. crude down 26% – total U.S. gas futures volume on the NYMEX dropped to 206,248 contracts on March 14, the lowest since March 2021. That compares with a daily average of 379,262 gas contracts traded over the past year.
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 109.2 bcfd this week to 94.7 bcfd next week. The forecast for next week was a little higher than Refinitiv’s outlook on Tuesday.
The amount of gas flowing to U.S. LNG export plants rose to 12.71 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 $36 per mmBtu in Europe and $34 in Asia, compared with around $5 in the United States.