US natural gas futures rose more than 4% to a near three-week high on Thursday, tracking a spike in European gas prices on expectations that US liquefied natural gas (LNG) exports will remain near records after Russian forces launched an invasion of Ukraine.
US prices also gained support from forecasts for cooler weather and higher heating demand over the next two weeks despite a smaller-than-expected storage withdrawal last week.
The US Energy Information Administration (EIA) said utilities pulled 129 billion cubic feet (bcf) of gas from storage during the week ended Feb. 18..
That was lower to the 134-bcf decline that analysts had forecast in a Reuters poll and compared with a draw of 324 bcf in the same week last year and a five-year (2016-2020) average decline of 166 bcf.
Last week's withdrawal reduced stockpiles to 1.782 trillion cubic feet (tcf), or about 11% below the five-year average of 1.996 tcf for this time of the year.
On its last day as the front-month, March gas futures were up 19.4 cents, or 4.2%, to $4.817 per million British thermal units (mmBtu) by 10:55 a.m. EST (1555 GMT), after rising as much as 6.9% to $4.940 earlier in the session, its highest level since Feb. 4.
"The situation in Ukraine and the halting of Nord Stream 2 will be having an effect on the market. Prices were already much higher in Europe than in the US, so the US was certain to be exporting its full capacity of LNG for many months to come," said John Abeln, an analyst with data provider Refinitiv.
"The sanctions on Russia and the suspension of Nord Stream 2 will no doubt increase the projected demand for US LNG in coming years," he added.
Gas prices in Europe jumped more than 50% to their highest level in two months after Russia's attack on Ukraine exacerbated supply concerns.
Over the past month or so, the United States has worked with other nations to ensure that gas supplies - mostly from liquefied natural gas (LNG) - would keep flowing to Europe in case Russia cuts off exports to the rest of the continent. Russia provides around 30%-40% of gas supplies to Europe, about 16.3 billion cubic feet per day (bcfd) in 2021.
Data provider Refinitiv said the amount of gas flowing to US LNG export plants has averaged 12.4 bcfd so far in February, in line with January's monthly record of 12.4 bcfd.
But no matter how high global prices rise, the United States only has capacity to turn about 12.4 billion cubic feet per day (bcfd) of gas into LNG. The rest of the fuel flowing to LNG facilities is used to run plant equipment.
Refinitiv estimated 384 heating degree days (HDDs) over the next two weeks in the Lower 48 US states. The normal is 342 HDDs for this time of year. Refinitiv projected that average US gas demand, including exports, would rise from 121.3 bcfd this week to 123.4 bcfd next week as temperatures drop.
Refinitiv said average gas output in the US Lower 48 states fell from a record 97.3 bcfd in December to 94.0 bcfd in January and 93.2 bcfd so far in February, as cold weather froze oil and gas wells in several producing regions earlier in the new year.