U.S. natural gas futures rose on Friday and has gained over 68% so far this week, lifted by forecasts for extreme cold over the next two weeks that is expected to drive heating demand to near-record levels and freeze oil and gas wells, cutting output.
On Friday, front-month gas futures for February delivery on the New York Mercantile Exchange (NYMEX) rose 20.6 cents, or 4.1%, to $5.25 per million British thermal units (mmBtu).
“Henry Hub pricing swung significantly higher this week largely on colder weather forecasts across the U.S. in the near-term, and supported by LNG feedgas demand,” RBC Capital Markets said in a note on Friday. Meteorologists forecast weather across the country would remain mostly colder than normal through February 6, as Heating Degree Days (HDDs) stood at 581 on Friday, exceeding the near-normal level of 395. HDDs measure energy demand to heat buildings.
During extreme cold, there are real concerns about equipment freezing — from hydrating wells to pipelines — and that’s going to keep the market well supported, said Phil Flynn, senior analyst for Price Futures Group.
Meanwhile, the U.S. power grid faces an elevated risk of disruption over the next several days as an Arctic blast and reduced gas supplies test the sturdiness of electric infrastructure vulnerable to the around-the-clock demands of data centers.
The U.S. Energy Information Administration storage release on Thursday showed energy firms pulled just 120 billion cubic feet of gas out of storage during the week ended January 16 when the weather was still warmer than normal.
That reading was bigger than the 106-bcf withdrawal analysts forecast in a Reuters poll, but below a decline of 228 bcf during the same week last year and an average withdrawal of 191 bcf over the past five years (2021-2025).
“Even allowing for some temperature moderation through the first week of next month, the magnitude of this current cold spell will be prompting some huge storage withdrawals during the next few weeks,” consultancy Ritterbusch & Associates said in a note.
Financial firm LSEG said average gas output in the Lower 48 states has slid to 108.4 billion cubic feet per day (bcfd) so far in January, down from a monthly record high of 109.7 bcfd in December.
LSEG projected average gas demand in the Lower 48 states, including exports, would fall from 173 bcfd this week to 156 bcfd next week.
Average gas flows to the eight large U.S. LNG export plants have held at 18.6 bcfd so far in January, matching the monthly record high set in December.
Elsewhere, benchmark Dutch and British wholesale gas prices were steady, due to a warmer-than-expected February forecast, even as concerns remained around cold temperatures in the U.S. and a possible impact on liquefied natural gas exports.
(Reporting by Noel John, Editing by Nick Zieminski)