US natural gas futures jumped over 3% on Monday from a near four-year low last week on forecasts for colder weather and higher heating demand in February, record liquefied natural gas (LNG) exports and a continued slowdown in daily output.
Front-month gas futures for February delivery on the New York Mercantile Exchange (NYMEX) rose 6.4 cents, or 3.4%, to $1.957 per million British thermal units (mmBtu) at 8:42 a.m. EST (1342 GMT). On Friday, the contract closed at its lowest since March 2016. Since hitting an eight-month high of $2.905 per mmBtu in early November, futures have collapsed 33%.
Near record production and mild weather have enabled utilities to leave more gas in storage, making shortages and winter price spikes much less likely. Lack of worry about supplies caused speculators to boost short positions on the NYMEX to an all-time high again last week, which increased their net shorts on the NYMEX and Intercontinental Exchange to the highest on record, according to US Commodity Futures Trading Commission (CFTC) data going back to 2010.
Meteorologists projected the weather in the US Lower 48 states will turn colder from Feb. 4-11 from warmer than normal now. That is much cooler than last week's outlook. So far this winter has been much milder than usual with average daily temperatures 3 degrees Fahrenheit higher than normal in December and 5 degrees higher in January.
Refinitiv projected average demand in the Lower 48 states, including exports, would rise from 120.5 billion cubic feet per day (bcfd) this week to 129.1 bcfd next week. That is higher than Refinitiv's estimates on Friday due to increasing heating demand and higher LNG exports.
The amount of gas flowing to US LNG export plants was on track to jump to a record 9.4 bcfd on Monday, according to early pipeline flow data from Refinitiv. That compares with an average of 9.1 bcfd last week.
The US gas industry is counting on LNG exports, which soared 53% in 2018 and 68% in 2019, to remain the biggest driver of future demand growth. Analysts have warned that any threat to LNG sales could cause US prices to drop. Last week, mild weather in Europe and Asia curbed demand, causing some future prices in both regions to fall to their lowest in years.
Some analysts have said the US LNG export arbitrage to Asia was already closed and note the arb to Europe could close as European hubs struggle to absorb additional supplies as Asian firms redirect tankers to Europe. That could lead to the temporary shutdown of some US LNG plants due to lack of demand in coming months.
Gas output in the Lower 48 states, meanwhile, fell to a three-month low of 93.4 bcfd over the weekend, according to early pipeline flow data from Refinitiv. That compares with an average of 94.1 bcfd last week and a daily record high of 96.8 bcfd on November 30.
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