U.S. natgas futures on track for seven-year high as global prices soar

U.S. natural gas futures jumped 4% and were on track to reach a fresh seven-year high as soaring global prices kept demand for U.S. LNG exports strong. Futures prices in Europe soared over 17% for November and 18% for December to fresh record highs on worries several European countries do not have enough gas stored for the coming winter heating season.

Prices in Asia also traded near record levels as China and other major LNG buyers compete for available cargoes to meet the demand for the super-cooled fuel. In the U.S., traders noted that prices were rising despite forecasts for U.S. weather to remain milder than normal through late October, which should keep overall heating and cooling demand lower than usual. Of course, some regions will see lingering air conditioning use, while others will crank up their heaters.

Front-month gas futures rose 4.0% to $5.995 per MMBtu at 8:11 a.m. EDT, putting the contract on track for its highest close since February 2014. Analysts have said that stockpiles in some European countries were over 20% below normal for this time of year. In the U.S., meanwhile, inventories were expected to reach about 3.5 Tft³  by the end of October. Analysts said that should be enough for the U.S. winter heating season even though that amount would fall short of the 3.7 Tft³ five-year (2016-2020) average for that time of year.

Belief that the U.S. will have enough gas in storage for this winter and a lack of capacity to export more LNG has kept U.S. prices from rocketing to the record levels seen in Europe and Asia, but pipeline constraints and competition for expensive LNG exports were expected to boost prices to multi-year highs in California and New England this winter. Data provider Refinitiv said gas output in the U.S. Lower 48 states rose to an average of 91.7 bft³d so far in October from 91.1 bft³d in September. That compares with a monthly record of 95.4 bft³d in November 2019. U.S. gas demand, including exports, would slide from an average of 85.0 bft³d this week to 83.6 bft³d as the weather turns milder. 

With gas prices at or near record highs of $38 per MMBtu in Europe and $32 in Asia, versus just $6 in the U.S., traders said buyers around the world would keep purchasing all the LNG the U.S. could produce.

With Berkshire Hathaway Energy's Cove Point LNG export plant in Maryland expected to remain shut for another week of planned maintenance, Refinitiv said the amount of gas flowing to U.S. LNG export plants slipped to an average of 10.2 bft³d so far in October from 10.4 bft³d in September. But no matter how high global prices rise, the U.S. only has the capacity to turn about 10.5 bft³d of gas into LNG. Global markets will have to wait until later this year to get more from the United States when the sixth liquefaction train at Cheniere Energy Inc's Sabine Pass and Venture Global LNG's Calcasieu Pass in Louisiana are expected to start producing LNG in test mode.

(Reporting by Scott DiSavino; Editing by Mark Porter)

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