U.S. natural gas futures jumped more than 8% on Tuesday, edging closer to a more than 13-year peak hit last month, on prospects for increased demand for U.S. LNG exports, while warmer-than-usual weather forecasts could increase cooling demand.
U.S. front-month gas futures for June delivery gained 60.8 cents, or 8.1%, to $8.083 per million British thermal units (mmBtu) at 10:24 a.m. EDT (1424 GMT). Prices earlier hit $8.169 per mmBtu, the highest since September 2008.
“While the domestic demand does not seem to be too much out of line with the normal conditions, it is the international pull of gas away from the U.S. that concerns the market,” said Zhen Zhu, managing consultant at C.H. Guernsey and Co in Oklahoma City.
“There will be more demand from the international market especially the European and Asian markets. This increased demand is not expected to be just transitory.”
The European Union was preparing sanctions on Russian oil on Monday, with possible exemptions for wary countries, and warned that complying in full with Moscow’s proposed scheme to receive gas payments in roubles would breach existing EU sanctions.
Russia supplies 40% of EU gas and 26% of its oil imports.
U.S. gas futures have rallied by more than 100% so far this year as higher global prices kept demand for U.S. LNG exports near record highs since Russia invaded Ukraine on Feb. 24. Gas was trading around $36 per mmBtu in Europe and $24 in Asia.
The U.S. gas market, however, remains mostly shielded from those much 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.
“With any increase in production going forward likely to find its way into the more financially attractive export trade, the ability to reduce a 300+ bcf U.S. deficit anytime soon will keep this market well supported,” advisory firm Ritterbusch and Associates said in a note.
On a daily basis, output dropped about 1.9 bcfd to a preliminary 92.7 bcfd on Tuesday, data from Refinitiv showed. Preliminary data is often revised.
Forecasts from the data provider also showed temperatures over the next two weeks are estimated to be warmer than usual with 93 cooling degree days (CDDs) projected compared with a 30-year average of 66 CDDs for the period.
CDDs, used to estimate demand to cool homes and businesses, measure the number of degrees a day’s average temperature is above 65 degrees Fahrenheit (18 degrees Celsius).