U.S. natgas futures ease from 9-week high on mild weather forecasts

U.S. natural gas futures eased on Friday from a nine-week high in the prior session on forecasts for mild weather through mid April, which should cut heating demand and allow utilities to inject gas into storage in coming months.

Front-month gas futures fell 5.7 cents, or 1.0%, to $5.585 per million British thermal units (mmBtu) at 9:08 a.m. EDT (1308 GMT). On Thursday, the contract closed at its highest since Jan. 27 for a second day in a row.

For the week, the front-month was down less than 1% after gaining about 15% last week.

The premium of futures for June over May, meanwhile, rose to its highest since October 2010.

U.S. gas futures have climbed in recent months – prices in March were the highest for that month in eight years – as soaring global prices keep demand for U.S. liquefied natural gas (LNG) exports near record highs on concerns Russia could stop delivering gas to Europe as countries there impose further sanctions against Moscow after Russia’s invasion of Ukraine on Feb. 24. Russia calls its actions in Ukraine a “special operation.”

European gas was trading around $38 per mmBtu on Friday on worries Russia might cut supplies if Europe does not pay for the fuel in roubles.

The U.S. gas market, however, remains mostly shielded from higher global prices because the United States, the world’s top gas producer, has all the fuel it needs for domestic use, and the country’s ability to export more LNG is constrained by limited capacity.

Since it cannot produce any more LNG no matter how high global gas prices rise, the United States has agreed to divert some of its LNG exports to Europe to help its allies break their dependence on Russian gas.

Russia, the world’s second-biggest gas producer, provided about 30%-40% of Europe’s gas, which totaled about 18.3 billion cubic feet per day (bcfd) in 2021.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 93.7 bcfd in March from 92.8 bcfd in February, as more oil and gas wells return to service after freezing over the winter. That compares with a monthly record of 96.3 bcfd in December.

Refinitiv projected average U.S. gas demand, including exports, would drop from 106.2 bcfd this week to 96.7 bcfd next week and 93.1 bcfd in two weeks as the weather turns seasonally milder. Those forecasts were similar to Refinitiv’s outlook on Thursday.

The amount of gas flowing to U.S. LNG export plants rose to a monthly record of 12.86 bcfd in March from 12.43 bcfd in February and the prior all-time high of 12.44 bcfd in January. The United States can turn about 13.2 bcfd of gas into LNG.

Traders said U.S. LNG exports will remain near record levels so long as global gas prices remain 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, especially with the threat that Russia could cut European supplies.

Gas stockpiles in Western Europe (Belgium, France, Germany and the Netherlands) were about 30% below the five-year (2017-2021) average for this time of year, according to Refinitiv. That compares with inventories about 15% below normal in the United States.