NEW YORK: US natural gas futures slid about 2% on Tuesday on forecasts for milder than normal weather and lower heating demand over the next two weeks than previously expected, which should allow utilities to start injecting gas into storage next week - about a week earlier than usual. The price decline came even though European gas prices shot up over 10% earlier on Tuesday after Eastern Europe started pulling gas from the West.
European gas was trading about eight times more than US futures, keeping demand for US liquefied natural gas (LNG) exports at record highs, with Russia’s invasion of Ukraine on Feb. 24 stoking global energy supply concerns. Russia is the world’s second-biggest gas producer after the United States.
But US gas futures remain shielded from global prices because the United States has all the fuel it needs for domestic use and the country’s ability to export more 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, it will not be able to produce much more of the super cooled fuel anytime soon.
Before Russia’s invasion, the United States worked with other countries to ensure gas supplies, mostly from LNG, would keep flowing to Europe. Russia usually provides around 30% to 40% of Europe’s gas, which totaled about 18.0 billion cubic feet per day (bcfd) in 2021.
US front-month gas futures fell 9.0 cents, or 1.9%, to settle at $4.568 per mmBtu, their lowest close since Feb. 9.
The premium of futures for May over April rose to a record 5.2 cents. Data provider Refinitiv said average gas output in the US Lower 48 states was on track to rise to 93.0 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 milder spring weather coming, Refinitiv projected average US gas demand, including exports, would drop from 109.8 bcfd this week to 94.4 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Monday. The amount of gas flowing to US LNG export plants rose to 12.70 bcfd so far in March from 12.43 bcfd in February and on pace to outstrip January’s monthly record of 12.44 bcfd. The United States has the capacity to turn about 12.7 bcfd of gas into LNG. Traders said US LNG exports would remain near record levels so long as global gas prices trade well above US futures as utilities around the world scramble for cargoes to meet surging demand in Asia and replenish low inventories in Europe, especially with the threat Russia could cut European supplies.
Gas futures traded near $39 per mmBtu in Europe and $37 in Asia, compared with around $5 in the United States.