U.S. natgas futures slide 2% on lower demand forecasts, price drop in Europe

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U.S. natural gas futures slid about 2% on Friday on forecasts for milder weather and lower demand in two weeks and a 3% decline in European gas futures even though exports from Russia fell due to sanctions and the shutdown of a pipe in Ukraine.

That U.S. price decrease came even as Texas prepares for another heatwave early next week that will boost power demand for air conditioning.

U.S. front-month gas futures for June delivery fell 13.9 cents, or 1.8%, to $7.600 per million British thermal units (mmBtu) at 9:45 a.m. EDT (1345 GMT).

That put the contract down about 6% for the week after rising about 11% last week.

Despite this week’s decline, U.S. gas futures were still up about 103% since the start of the year as higher global prices kept demand for U.S. LNG exports strong since Russia’s Feb. 24 invasion of Ukraine.

Gas was trading around $31 per mmBtu in Europe and $24 in Asia. The U.S. contract rose to a 13-year high near $9 on May 6.

The U.S. gas market remains mostly shielded from those higher global prices because the United States is the world’s top gas producer, with all the fuel it needs for domestic use while capacity constraints inhibit exports of more LNG no matter how high global prices rise.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states climbed to 94.8 billion cubic feet per day (bcfd) so far in May from 94.5 bcfd in April. That compares with a monthly record of 96.1 bcfd in November 2021.

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Refinitiv projected average U.S. gas demand, including exports, would slide from 90.5 bcfd this week to 89.8 bcfd next week and 89.5 bcfd in two weeks. The forecast for next week was higher than Refinitiv’s outlook on Thursday.

The amount of gas flowing to U.S. LNG export plants held at 12.2 bcfd so far in May, the same as April. That compares with a monthly record of 12.9 bcfd in March. The United States can turn about 13.2 bcfd of gas into LNG.

Since the United States will not be able to produce much more LNG anytime soon, it has worked with allies to divert LNG exports from elsewhere to Europe to help European Union (EU) countries and others break their dependence on Russian gas.

Russia, the world’s second-biggest gas producer, has provided about 30%-40% of Europe’s gas, totaling about 18.3 bcfd in 2021. The EU wants to cut Russian gas imports by two-thirds by the end of 2022 and refill stockpiles to 80% of capacity by Nov. 1, 2022 and 90% by Nov. 1 each year from 2023.

Russian gas exports to Europe fell to around 8.1 bcfd on Thursday from about 8.5 bcfd on Friday on the three mainlines into Germany – North Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route. That compares with an average of 11.9 bcfd in May 2021.

Gas stockpiles in Northwest Europe – Belgium, France, Germany and the Netherlands – were about 16% below the five-year (2017-2021) average for this time of year, down from 39% below the five-year norm in mid-March, according to Refinitiv. Storage was currently about 34% of full capacity.

U.S. inventories, meanwhile, were also around 16% below their five-year norm.