U.S. natural gas futures jumped about 5% to a one-week high on Wednesday with output on track to drop for a second day in a row and forecasts for more demand this week than previously expected.
That price increase came despite forecasts for less hot weather through mid August and the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas, which has left more gas in the United States for utilities to inject into stockpiles for next winter.
Freeport LNG retracted the force majeure it initially declared after the explosion in June, a development that could cost its buyers billions of dollars in losses.
Freeport LNG, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. Freeport expects the plant to return to at least partial service in early October.
Front-month gas futures rose 36.9 cents, or 4.7%, to settle at $8.202 per million British thermal units (mmBtu), their highest since Aug. 3.
So far this year, the front-month is up about 121% as much higher prices in Europe and Asia feed strong demand for U.S. LNG exports. Global prices soared this year as several countries cut their use of Russian energy after Moscow invaded Ukraine on Feb. 24.
Gas was trading around $62 per mmBtu in Europe and $45 in Asia.
The United States became the world’s top LNG exporter during the first half of 2022. But no matter how high global gas prices rise, the United States cannot export more LNG because the country’s plants were already operating at full capacity.
Russian gas exports via the three main lines into Germany – Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route – held at 2.5 bcfd on Tuesday, the same as Monday.
That compares with an average of 2.8 bcfd in July and 10.4 bcfd in August 2021.
U.S. gas futures lag far behind global prices because the United States is the world’s top producer with all the fuel it needs for domestic use, while capacity constraints and the Freeport outage prevent the country from exporting more LNG.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 97.8 bcfd so far in August from a record 96.7 bcfd in July.
On a daily basis, however, output was on track to drop by a preliminary 2.2 bcfd over the past couple of days since hitting a record 98.3 bcfd on Monday. Preliminary data is often revised later in the day.
With less hot weather expected, Refinitiv projected average U.S. gas demand, including exports, would fall from 101.5 bcfd this week to 97.2 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Tuesday.
The average amount of gas flowing to U.S. LNG export plants held at 10.9 bcfd so far in August, the same as July. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.
The reduction in U.S. exports from Freeport is a problem for Europe, where most U.S. LNG has gone this year as countries there wean themselves off Russian energy.
Gas stockpiles in northwest Europe – Belgium, France, Germany and the Netherlands – were about 4% below their five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently at about 68% of capacity.
That is much healthier than U.S. gas inventories, which were about 12% below their five-year norm.