U.S. natural gas futures eased from a seven-week high during the prior two sessions on a smaller than expected storage draw last week when the weather was milder than normal.
That U.S. price decline came even though rising global demand for gas to replace Russian fuel after the country’s invasion of Ukraine keeps U.S. liquefied natural gas (LNG) exports near record highs and European gas prices about eight times over U.S. futures.
The U.S. Energy Information Administration (EIA) said U.S. utilities pulled 51 billion cubic feet (bcf) of gas from storage during the week ended March 18.
That was lower than the 56-bcf decline analysts forecast in a Reuters poll and compares with a decline of 29 bcf in the same week last year and a five-year (2017-2021) average decline of 62 bcf.
Last week’s withdrawal cut stockpiles to 1.389 trillion cubic feet (tcf), or 17.4% below the five-year average of 1.682 tcf for this time of the year.
Although it will be cooler next week, meteorologists forecast the weather in the United States will remain near normal through early April, which should keep heating demand low enough to allow utilities to inject gas into storage this week – about a week earlier than usual. Supply and demand forecasts next week, however, were about even, and utilities will likely leave stockpiles little changed.
U.S. front-month gas futures fell 5.4 cents, or 1.0%, to $5.178 per million British thermal units (mmBtu) at 10:38 a.m. EDT (1438 GMT). On Wednesday, the contract closed at it highest since Feb. 2 for a second day in a row.
The U.S. market remains mostly shielded from higher 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 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. European gas jumped about 8% to around $39 per mmBtu earlier on Thursday on worries Russia could cut supplies after demanding payment for gas in roubles. Russia is the world’s second-biggest gas producer, after the United States.
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.
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 97.0 bcfd this week to 102.3 bcfd next week. The forecast for this week was higher and the forecast for next week was lower than Refinitiv’s outlook on Wednesday.
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 for as 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 35% 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.
Traders placed most of their U.S.-style options bets for April on $5 per mmBtu calls. Most gas options traded on the NYMEX are European-style, which can only be exercised on the day of expiration, which is March 25 for the April options. U.S.-style options can be exercised at any time.