U.S. natural gas futures climbed almost 6% to a near seven-week high on Tuesday on forecasts for cooler weather and higher heating demand next week than previously expected.
That price increase also came as global demand for gas to replace Russian fuel after its invasion of Ukraine keeps U.S. liquefied natural gas (LNG) exports near record highs and European gas prices about six times over U.S. futures.
U.S. front-month gas futures rose 28.7 cents, or 5.9%, to settle at $5.187 per million British thermal units (mmBtu), their highest close since Feb. 2.
The U.S. market remains mostly shielded from much higher global prices – European gas traded around $31 per mmBtu on Tuesday – because the United States has all the fuel it needs for domestic use, and the country’s ability to export more LNG is constrained by limited capacity.
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 export much more of the supercooled fuel.
Before Russia’s Feb. 24 invasion of Ukraine, the United States worked with other countries to ensure gas supplies, mostly from LNG, would keep flowing to Europe. Russia has provided around 30% to 40% of Europe’s gas, which totaled about 18.3 billion cubic feet per day (bcfd) in 2021.
Russia is the world’s second-biggest gas producer after the United States.
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.
With cooler weather coming, Refinitiv projected average U.S. gas demand, including exports, would rise from 95.8 bcfd this week to 99.6 bcfd next week. The forecast for next week was higher than Refinitiv’s outlook on Monday.
Even though it will be cooler next week, meteorologists still forecast U.S. weather will remain milder than normal through at least early April, which should keep heating demand low enough to allow utilities to start injecting gas into storage this week – about a week earlier than usual.
The amount of gas flowing to U.S. LNG export plants rose to 12.78 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. The rest of the gas flowing to the plants is used to operate the facilities.
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 37% below the five-year (2017-2021) average for this time of year, according to Refinitiv. That compares with inventories about 17% below normal in the United States.