U.S. natural gas futures slid on Monday from an eight-week high in the prior session on a drop in crude prices and a small decline in demand next week that should allow utilities to inject gas into storage.
That price decline came despite forecasts for colder weather and higher heating demand this week than previously expected that will likely force utilities to pull gas from storage after injecting it during last week’s milder weather.
The U.S. price decline also came despite rising global demand for gas to replace Russian fuel as Russia’s 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.
On its second to last day as the front-month, gas futures for April delivery on the New York Mercantile Exchange (NYMEX) were down 10.3 cents, or 1.9%, to $5.468 per million British thermal units (mmBtu) at 8:54 a.m. EDT (1254 GMT). On Friday, the contract closed at its highest since Jan. 27.
Futures for May were down about 2% to around $5.50 per mmBtu.
With cold weather expected this week, U.S. gas speculators last week boosted their net long futures and options positions on the NYMEX and Intercontinental Exchanges for the first time in seven weeks, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
U.S. crude futures dropped over 5% on concerns about Chinese demand, while European gas prices gained about 6% to trade around $34 per mmBtu on forecasts for colder weather.
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.
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 up 93.3 bcfd so far in March from 92.5 bcfd in February as more oil and gas wells return to service after freezing over the winter. That compares with a monthly record of 96.2 bcfd in December.
Refinitiv projected average U.S. gas demand, including exports, would drop from 106.0 bcfd this week to 98.4 bcfd next week as the weather turns seasonally milder. The forecast for this week was higher and the forecast for next week was lower than Refinitiv’s outlook on Friday.
The amount of gas flowing to U.S. LNG export plants has risen to 12.87 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.