NEW YORK: US natural gas futures slid over 3% on Monday on forecasts for less cold weather and lower heating demand next week than previously expected.
That price decline came even though soaring global oil and gas prices kept demand for US liquefied natural gas (LNG) exports strong as the Russia-Ukraine conflict stokes energy supply concerns, especially with the United States and Europe considering a ban on Russian energy imports.
US gas futures, however, remain shielded from record European prices because the United States, the world’s biggest gas producer, has all the fuel it needs for domestic use and the country’s ability to export more gas as liquefied natural gas (LNG) is limited by capacity constraints.
The United States is already producing LNG near full capacity, so no matter how high global gas prices rise, the US can’t produce much more of the super cooled fuel. European futures rose as much as 60% over Friday’s record close at one point on Monday, putting European prices about 21 times over US futures.
Since the start of the year, the US gas market has mostly shrugged off what was happening in Europe, focusing more on domestic weather and supply and demand, with US gas prices moving in the opposite direction of Europe more than half the time.
But it has been hard for the US market to ignore the massive gains in global energy prices in recent weeks. Since Russia invaded Ukraine on Feb. 24, European gas futures have spiked over 280% and were at the record high, while US crude futures jumped as much as 42% to their highest since 2008.
Before the Russian invasion, the United States worked with other countries to ensure that gas supplies, mostly from LNG, would keep flowing to Europe. Russia, the world’s second-biggest gas producer, usually provides around 30% to 40% of Europe’s gas, which totaled about 16.3 billion cubic feet per day (bcfd) in 2021. Front-month gas futures fell 18.3 cents, or 3.6%, to settle at $4.833 per million British thermal units. On Friday, the contract closed at its highest since Feb. 2.
Data provider Refinitiv said average gas output in the US Lower 48 states was on track to rise to 93.6 bcfd in March from 92.5 bcfd in February as more oil and gas wells return to service after freezing earlier in the year. That compares with a monthly record of 96.2 bcfd in December.
With the coming of colder weather next week, Refinitiv projected average US gas demand, including exports, would rise from 109.8 bcfd this week to 115.1 bcfd next week. The forecast for next week, however, was lower than Refinitiv’s outlook on Friday.
The amount of gas flowing to US LNG export plants rose to 12.60 bcfd so far in March from 12.43 bcfd in February and a record 12.44 bcfd in January. The United States only has the capacity to turn about 12.5 bcfd of gas into LNG. The rest of the fuel flowing to the facilities is used to operate the plants.
Traders said demand for US LNG would remain at or near record levels so long as global gas prices keep trading well above US futures as utilities around the world scramble for cargoes with the threat that Russia could cut gas supplies to Europe.
Gas futures traded near $89 per mmBtu in Europe and $39 in Asia, compared with around $5 in the United States.