U.S. natural gas futures jumped about 5% to one-week high on Wednesday on expectations U.S. liquefied natural gas (LNG) will remain near record highs for months to come, after Moscow’s toughest retaliation so far against international sanctions over its invasion of Ukraine.
Russia halted gas supplies to Bulgaria and Poland for rejecting its demand for payment in roubles, causing gas prices in northwestern Europe to jump 5% on Tuesday and 9% on Wednesday.
U.S. prices also gained support from forecasts for more gas demand in the United States over the next two weeks than previously expected, and a continued drop in U.S. output due to a late-season cold snap that froze oil and gas wells in North Dakota.
In addition, energy traders said Wednesday’s trade could be volatile with the upcoming expiration of the U.S. May futures.
“Today’s trading… is likely to be dictated by the expiring May contract,” analysts at EBW Analytics said, noting “the expiring front-month has gained on final settlement day in 12 of the past 16 months.” The February contract soared by a record 46% on its expiration day.
On its last day as the U.S. front-month, gas futures for May delivery rose 34.2 cents, or 5.0%, to $7.192 per million British thermal units (mmBtu) at 10:06 a.m. EDT (1406 GMT), putting the contract on track for its highest close since April 18.
Futures for June, which will soon be the front-month, gained about 5.0% to $7.34 per mmBtu. If the May and June futures close at these levels, June’s 16-cent premium over May would be a record high for the contracts.
U.S. gas futures were up about 93% so far this year as higher global prices have kept demand for U.S. LNG exports near record highs since Russia invaded Ukraine on Feb. 24 in what Moscow calls a “special military operation”. Gas was trading around $33 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 94.1 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 4.3 bcfd due to the North Dakota freeze-offs since Saturday to a preliminary 90.6 bcfd on Wednesday, the lowest since early February.
“Since freeze-offs usually recover rapidly, we expect production to begin to bounce higher within the next few days,” the EBW analysts said, noting the supply rebound may not appear in daily data until mid- to late next week because “pipeline nomination patterns often show phantom first-of-month declines.”
Refinitiv projected average U.S. gas demand, including exports, would slide from 93.4 bcfd this week to 91.1 bcfd next week due to a seasonal warming of the weather. Those forecasts were higher than Refinitiv’s outlook on Tuesday.
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.