U.S. natgas rises over 4% on spike in European prices after Russia attacks Ukraine

U.S. natural gas futures rose more than 4% to a near three-week high on Thursday, tracking a spike in European gas prices on expectations that U.S. LNG exports will remain near records after Russian forces launched an invasion of Ukraine.

U.S. prices also gained support from forecasts for cooler weather and higher heating demand over the next two weeks ahead of the U.S. Energy Information Administration's (EIA) weekly storage report.

On its last day as the front-month, March gas futures gained 19.7 cents, or 4.3%, to $4.820/MMBtu by 9:31 a.m. EST, after rising as much as 6.9% to $4.940 earlier in the session, its highest level since Feb. 4.

"The situation in Ukraine and the halting of Nord Stream 2 will be having an effect on the market. Prices were already much higher in Europe than in the U.S., so the U.S. was certain to be exporting its full capacity of LNG for many months to come," said John Abeln, an analyst with data provider Refinitiv. "The sanctions on Russia and the suspension of Nord Stream 2 will no doubt increase the projected demand for U.S. LNG in coming years," he said.

Gas prices in Europe jumped more than 50% to their highest level in two months after Russia's attack on Ukraine exacerbated supply concerns. Over the past month or so, the U.S. has worked with other nations to ensure that gas supplies — mostly from LNG — would keep flowing to Europe in case Russia cuts off exports to the rest of the continent. Russia provides around 30%-40% of gas supplies to Europe, about 16.3 Bft³/d in 2021.

"The rapidly unfolding developments in Ukraine are sparking a major injection of fear premium across most commodity markets, especially industrial commodities such as natural gas," advisory firm Ritterbusch and Associates said in a note. "Although today's gains in the gas market of around 5-6% are certainly modest compared to advances as much as 20-30% in parts of Europe, today's chart improvement could keep the futures significantly elevated for a couple more sessions regardless of underlying fundamentals."

Data provider Refinitiv said the amount of gas flowing to U.S. LNG export plants has averaged 12.4 Bft³/d so far in February, in line with January's monthly record of 12.4 Bft³/d. Refinitiv estimated 384 heating degree days (HDDs) over the next two weeks in the Lower 48 U.S. states.

The normal is 342 HDDs for this time of year. Refinitiv projected that average U.S. gas demand, including exports, would rise from 121.3 Bft³/dthis week to 123.4 Bft³/d next week as temperatures drop. In the U.S., analysts forecast that utilities pulled a smaller-than-usual 134 Bft³ of gas from storage during the week ended Feb. 18. That compares with a withdrawal of 324 Bft³ during the same week a year ago and a five-year (2017-2021) average withdrawal of 166 Bft³.

If correct, last week's withdrawal would cut stockpiles to 1.777 Tft³, or 11% below the five-year average of 1.996 Tft³ for this time of the year. Refinitiv said average gas output in the U.S. Lower 48 states fell from a record 97.3 Bft³ in December, to 94.0 Bft³ in January, and 93.2 Bft³/d so far in February, as cold weather froze oil and gas wells in several producing regions earlier in the new year.

(Reporting by Brijesh Patel in Bengaluru; Editing by Mark Porter)

 

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