U.S. natural gas futures edged higher on Wednesday as worries about Russia’s plan to price energy exports in roubles caused global energy prices to spike, keeping demand for U.S. liquefied natural gas (LNG) exports near record highs.
That small U.S. gas price gain came despite forecasts for milder weather and lower demand than previously expected, which should allow utilities to inject gas into storage next week.
Germany on Wednesday triggered an emergency plan to manage gas supplies in Europe’s largest economy in an unprecedented move that could see the government ration power if there is a disruption or halt in gas supplies from Russia. That caused gas prices at the Title Transfer Facility (TTF) in the Netherlands, the European benchmark, to jump about 18% to around $41 per million British thermal units (mmBtu) earlier in the session.
Russia, however, said it will not immediately demand that buyers pay for its gas exports in roubles, promising a gradual shift.
On their first day as the front month, gas futures for May delivery rose 8.1 cents, or 1.5%, to $5.411 per mmBtu at 8:57 a.m. EDT (1257 GMT).
The U.S. gas 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 it will not be able to export much more of the supercooled fuel regardless of how high global gas prices rise.
The United States, the world’s top gas producer, has agreed to divert some of its gas exports to provide more LNG to Europe to help allies break dependence on Russian gas after Russia invaded Ukraine on Feb. 24. Russia, the world’s second-biggest gas producer, provided about 30-40% of Europe’s gas, which totalled 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, up 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 105.3 bcfd this week to 95.8 bcfd next week as the weather turns milder. The forecast for next week was lower than Refinitiv’s outlook on Tuesday.
The amount of gas flowing to U.S. LNG export plants rose to 12.81 bcfd so far in March, up from 12.43 bcfd in February and a monthly record of 12.44 bcfd in January. The United States can 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 provided that global gas prices remain 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 of Russia possibly cutting European supplies.