U.S. natgas futures rise on record LNG exports & colder forecasts

2/18/2022

U.S. natural gas futures rose nearly 2% on Friday on record LNG exports and a forecast for much colder weather and higher heating demand in two weeks' time. That price increase came despite a continued slow recovery in U.S. output from cold weather-related reductions earlier in the month and forecasts for less cold weather and lower heating demand next week than previously expected.

Traders said the U.S. market continued to shrug off what was happening in the Europe gas market, where prices were down about 3%, due in part to a perceived easing in tensions between Russia and Ukraine. The U.S. has worked with other nations to ensure gas supplies, mostly LNG, would keep flowing to Europe if Russia cuts off exports there. The U.S. and Europe have said they would sanction Russia if it invaded Ukraine. This could prompt Russia to cut exports to Europe, where Russia provides around 30%-40% of gas supplies, about 16.3 Bft³/d in 2021.

The U.S. gas market so far this year has focused on U.S. weather and domestic supply and demand rather than geopolitics. U.S. gas prices have followed Europe only about a third of the time in 2022, down from two-thirds in the fourth quarter of 2021. After weeks of near record volatility, front-month gas futures for March delivery on the New York Mercantile Exchange (NYMEX) rose 8.1 cents, or 1.8%, to $4.567/MMBtu at 8:41 a.m. EST . That put the contract on track to rise about 16% for the week, which would be its highest weekly percentage gain since late January.

Last week, the contract dropped 14%. Traders placed most of their American-style options bets for March on $5 and $6/MMBtu calls. Most gas options traded on the NYMEX, however, are European-style, which can only be exercised on the day of expiration, which is Feb. 23 for March options. American-style option can be exercised at any time.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states fell from a record 97.3 Bft³/d in December to 94.0 Bft³/d in January and 92.9 Bft³/d so far in February, as cold weather froze oil and gas wells in several producing regions earlier in the new year.

On a daily basis, however, gas production has gained almost every day since dropping to 86.3 Bft³/d during winter storm on Feb. 4. Output rose to a recent high of 95.2 Bft³/d on Feb. 11, the most since Jan. 1. With colder weather coming, Refinitiv projected average U.S. gas demand, including exports, would rise from 121.6 Bft³/d this week to 123.1 Bft³/d next week and 128.8 Bft³/d in two weeks.

The forecast for next week was lower than Refinitiv's outlook on Thursday. The amount of gas flowing to U.S. LNG export plants rose to 12.7 Bft³/d so far in February, which would top January's monthly record of 12.4 Bft³/d. On a daily basis, LNG feed gas was on track to reach a preliminary 13.4 Bft³/d on Friday, which would top the current record high of 13.3 Bft³/d on Jan. 20.

A tanker arrived at Calcasieu on Feb. 7 and will likely leave with the plant's first cargo in coming days.

Reporting by Scott DiSavino; editing by Barbara Lewis