U.S. natural gas futures jumped about 3% on Tuesday on expectations that recent declines in output will reduce the amount of gas utilities can inject into storage in coming weeks to levels below normal for this time of year.
On its second to last day as the U.S. front-month, gas futures for May delivery were up 19.5 cents, or 2.9%, at $6.864 per million British thermal units (mmBtu) at 9:11 a.m. EDT (1311 GMT).
Futures for June, which will soon be the front-month, were up about 2.8% at $6.99 per mmBtu.
U.S. gas futures were up about 87% so far this year as higher global prices have kept demand for U.S. liquefied natural gas (LNG) exports near record highs since Russia invaded Ukraine on Feb. 24. Gas prices were trading around $29 per mmBtu in Europe and $25 in Asia.
The U.S. gas market, however, remains mostly shielded from those higher global prices because the United States is the world’s top gas producer, with all the fuel it needs for domestic use while capacity constraints inhibit exports of more LNG no matter how high global prices rise.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 94.3 billion cubic feet per day (bcfd) so far in April from 93.7 bcfd in March. That compares with a monthly record of 96.3 bcfd in December 2021.
On a daily basis, however, output was on track to drop about 3.9 bcfd over the past three days to a preliminary 91.6 bcfd on Tuesday, the lowest since early February. Most of those declines were in North Dakota, Texas and the offshore Gulf of Mexico. Preliminary data is often revised.
With the weather turning seasonally milder, Refinitiv projected average U.S. gas demand, including exports, would slide from 92.2 bcfd this week to 90.6 bcfd next week. Those forecasts were similar to Refinitiv’s outlook on Monday.
The amount of gas flowing to U.S. LNG export plants slid from a record 12.9 bcfd in March to 12.3 bcfd so far in April due mostly to declines at Freeport LNG’s facility in Texas. The United States can turn about 13.2 bcfd of gas into LNG.
Since the United States will not be able to produce much more LNG anytime soon, the country has worked with allies to divert LNG exports to Europe to help European Union (EU) countries and others break their dependence on Russian gas.
Russia, the world’s second biggest gas producer, provides about 30% to 40% of Europe’s gas, totaling about 18.3 bcfd in 2021. The EU wants to cut Russian gas imports by two-thirds by the end of 2022 and refill stockpiles to 80% of capacity by Nov. 1, 2022, and 90% by Nov. 1 each year from 2023.
Gas stockpiles in Western Europe — Belgium, France, Germany and the Netherlands — were about 23% below the five-year (2017-2021) average for this time of year and about 28% of full capacity, according to Refinitiv.
U.S. inventories, meanwhile, were currently about 17% below the five-year norm.