U.S. natural gas futures rose about 5% to a near-nine week high on Wednesday as worries about Russia’s plan to price energy exports in rubles caused global energy prices to spike, keeping demand for U.S. LNG exports near record highs.
That U.S. gas price gain came despite forecasts for milder weather and lower demand than previously expected, which should allow utilities to inject gas into storage next week.
Germany on Wednesday triggered an emergency plan to manage gas supplies in Europe’s largest economy in an unprecedented move that could see the government ration power if there is a disruption or halt in gas supplies from Russia. That caused gas prices at the Title Transfer Facility (TTF) in the Netherlands, the European benchmark, to jump about 18% to around $41 per million British thermal units (MMBtu) earlier in the session.
European prices, however, pared gains – trading around $39 per MMBtu Wednesday afternoon – after Russia said it will not immediately demand buyers pay for its gas exports in rubles, promising a gradual shift.
On their first day as the front month, gas futures for May delivery rose 27.5 cents, or 5.2%, to settle at $5.605 per MMBtu, their highest close since Jan. 27.
The U.S. gas market remains mostly shielded from higher global prices because the United States has all the fuel it needs for domestic use and the country’s ability to export more LNG is constrained by limited capacity.
The United States is already producing LNG near full capacity. So, it will not be able to export much more of the supercooled fuel regardless of how high global gas prices rise.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 93.3 Bcf/d so far in March, up from 92.5 Bcf/d in February, as more oil and gas wells return to service after freezing over the winter. That compares with a monthly record of 96.2 Bcf/d in December.
Refinitiv projected average U.S. gas demand, including exports, would drop from 105.3 Bcf/d this week to 95.8 Bcf/d next week as the weather turns milder. The forecast for next week was lower than Refinitiv’s outlook on Tuesday.
The amount of gas flowing to U.S. LNG export plants rose to 12.81 Bcf/d so far in March, up from 12.43 Bcf/d in February and a monthly record of 12.44 Bcf/d in January. The United States can turn about 13.1 Bcf/d of gas into LNG.
Traders said U.S. LNG exports would remain near record levels provided that global gas prices remain 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.