U.S. natural gas futures rose by more than 4% on Monday after a 10% spike in European gas prices on expectations that U.S. liquefied natural gas (LNG) exports will remain near record highs as long as there is a possibility of Russia invading Ukraine and cutting gas supplies to the rest of Europe.
U.S. prices also gained support from forecasts for more U.S. demand over the next two weeks than previously expected despite a milder than normal weather outlook for the rest of February, and as output continues to recover from cold-weather related reductions over the past month.
Gas futures in Europe jumped 10% on Monday, putting prices about seven times above U.S. futures.
Front-month gas futures for March delivery rose 18.2 cents, or 4.6%, to $4.123 per million British thermal units (mmBtu) at 10:08 a.m. EST (1508 GMT), putting the contract on track for its highest close since Feb. 8.
Gas futures traded around $27 per mmBtu in Europe and $25 in Asia.
Since the start of the year, however, the U.S. market has focused more on changes in U.S. weather and domestic supply and demand, rather than what is happening around the world. So far in 2022, U.S. gas followed European prices about a third of the time versus two-thirds during the fourth quarter of 2021.
But, traders said, a 10% jump in European prices was hard to ignore, noting demand for U.S. LNG will remain strong so long as global gas prices trade well above U.S. futures as utilities around the world scramble for cargoes to meet surging demand in Asia and replenish low inventories in Europe.
That is even more true now with heigtened concerns Russia could invade Ukraine. If Russia invades, Europe and the United States would likely impose sanctions on Moscow, which could prompt Russia to cut gas supplies to Europe. Russia provides around 30%-40% of Europe’s gas supplies, totaling about 16.3 bcfd in 2021.
Over the weekend, there were tankers loading at all seven U.S. export plants for the first time ever after Venture Global last week got approval from federal regulators to load the first LNG cargo at its Calcasieu Pass LNG plant in Louisiana. A tanker arrived at Calcasieu on Feb. 7 and likely will take the plant’s first cargo in coming days.
The amount of gas flowing to all U.S. LNG export plants rose to an average of 12.6 billion cubic feet per day (bcfd) so far in February, which would top January’s monthly record of 12.4 bcfd, as liquefaction trains at Calcasieu enter service.
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.
Data provider Refinitiv said average output in the U.S. Lower 48 states fell from a record 97.3 bcfd in December to 94.0 bcfd in January and 92.4 bcfd so far in February as wells in several producing regions froze.
On a daily basis, however, output soared to 95.2 bcfd on Friday, its highest since Jan. 1, according to Refinitiv. Output has been rising almost daily since it dropped to 86.3 bcfd during a winter storm on Feb. 4, its lowest since February 2021.