U.S. natural gas futures gained about 4% to a one-week high on Wednesday with U.S. liquefied natural gas (LNG) exports near record highs and forecasts for slightly cooler weather and higher heating demand next week than previously expected.
Overall, however, traders said temperatures were mostly expected to remain at above-normal levels 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 traded 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.
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 Ukraine 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 totalled about 18.0 billion cubic feet per day (bcfd) in 2021.
U.S. front-month gas futures rose 18.0 cents, or 3.9%, to settle at $4.748 per million British thermal units (mmBtu), the highest close since March 7.
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 stockpiles in Western Europe (Belgium, France, Germany and the Netherlands) were about 38% below the five-year (2017-2021) average for this time of year, according to Refinitiv. That compares with inventories about 16% below normal in the United States.
Gas futures traded near $36 per mmBtu in Europe and $34 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.