U.S. natural gas futures eased to a three-week low on Friday as output starts to recover quickly from last week’s freezing weather and on forecasts confirming temperatures will remain higher than normal through late February.
Traders said that fears Russia could invade Ukraine “at any time,” according to U.S. Secretary of State Antony Blinken, prevented U.S. gas prices from falling further on Friday.
If Russia invades, Europe and the United States would likely impose sanctions on Russia. That could prompt Russia to cut off gas supplies to Europe, boosting the continent’s demand for U.S. liquefied natural gas (LNG). Russia provides 30%-40% of Europe’s gas supplies, totaling about 16.3 bcfd in 2021, according to analysts and U.S. energy data.
After weeks of near record volatility, U.S. front-month gas futures NGc1 for March delivery fell 1.8 cents, or 0.5%, to settle at $3.941 per million British thermal units, their lowest close since Jan. 20 for a second day in a row.
For the week, the contract was down about 14%, which would be its biggest one-week decline since early December.
Data provider Refinitiv said average output in the U.S. Lower 48 states fell from a record 97.3 billion cubic feet per day (bcfd) in December to 93.9 bcfd in January and 91.6 bcfd in February as wells in several producing regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota and the Appalachia in Pennsylvania, West Virginia and Ohio.
On a daily basis, however, output soared to 95.0 bcfd on Thursday, its highest since Jan. 1, according to Refinitiv. Output has been rising almost daily since it dropped to 86.3 bcfd during a winter storm on Feb. 4, its lowest since February 2021.
With cold weather moderating, Refinitiv projected average U.S. gas demand, including exports, would drop from 129.5 bcfd this week to 120.6 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Thursday.
The amount of gas flowing to U.S. LNG export plants rose to an average of 12.5 bcfd so far in February, which would top January’s monthly record of 12.4 bcfd, as liquefaction trains at Venture Global LNG’s Calcasieu Pass plant in Louisiana enter service.
Venture Global got approval from federal regulators on Friday to load the first LNG vessel. A tanker arrived at Calcasieu on Monday and likely will take the plant’s first LNG cargo in coming days.
Traders said demand for U.S. LNG will remain strong so long as global gas prices keep trading well above U.S. futures as utilities around the world scramble for cargoes to meet surging demand in Asia and replenish low inventories in Europe – especially with the threat that Russia could invade Ukraine and cut gas supplies to Europe.
Gas futures traded around $25 per mmBtu in Europe TRNLTTFMc1 and Asia JKMc1, compared with just $4 in the United States. But no matter how high global prices rise, the United States only has capacity to turn about 12.4 bcfd of gas into LNG. The rest of the gas flowing to LNG facilities is used to run plant equipment.
Global markets will have to wait until later this year when more of the 18 liquefaction trains under construction at Calcasieu start producing LNG. The first trains at the plant started producing LNG in January.
Source: Reuters (Reporting by Scott DiSavino; Editing by Andrea Ricci and Sandra Maler)