U.S. natgas futures rise 3% on profit taking, strong LNG demand

U.S. natural gas futures edged up about 3% on Tuesday as short sellers took some profits after the contract dropped about 16% during the prior three sessions and as higher global prices keep demand for U.S. LNG exports strong. That price increase came despite rising output and forecasts for milder weather and lower heating demand next week than previously expected.

In October, global gas prices soared to record highs as utilities scramble for LNG cargoes to refill low stockpiles in Europe and meet rising demand in Asia, where energy shortfalls have caused power blackouts in China. U.S. futures also climbed, reaching a 12-year high in early October, on expectations LNG demand will remain strong for many months.

Price gains in the U.S., however, were restrained compared with overseas markets because the United States has more than enough gas in storage for winter and ample production to meet domestic and export demand. Prices in Europe and Asia were about five times higher than in the U.S. Analysts expect U.S. gas inventories will top 3.6 Tft³ by the start of the winter heating season in November, which they said would be a comfortable level even though it falls shy of the five-year average of 3.7 Tft³.

U.S. stockpiles were currently about 3% below the five-year average for this time of year. In Europe, analysts said stockpiles were about 15% below normal. Front-month gas futures rose 15.3 cents, or 3.0%, to $5.339 per MMBtu at 6:57 a.m. EDT (1057 GMT).

On Monday, the contract closed at its lowest since Oct. 21.

Data provider Refinitiv said output in the U.S. Lower 48 states averaged 94.9 Bft³/d so far in November, up from 94.1 Bft³/d in October. That compares with a monthly record of 95.4 Bft³/d in November 2019. Refinitiv projected average U.S. gas demand, including exports, would hold around 96.4 Bft³/d this week and next. The forecast for next week was much lower than what Refinitiv projected on Monday.

The amount of gas flowing to U.S. LNG export plants has averaged 11.0 Bft³/d so far in November, up from 10.5 Bft³/d in October. That compares with a monthly record of 11.5 Bft³/d in April.

With gas prices near $23 per MMBtu in Europe and $29 in Asia, versus around $5 in the U.S., traders said buyers around the world will keep purchasing all the LNG the U.S. can produce. But no matter how high global gas prices rise, the U.S. has the capacity to turn only about 10.5 Bft³/d of gas into LNG. The rest of the gas flowing to the export plants is used to fuel equipment that produces the LNG.

Global markets will have to wait until later this year to get more, 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

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