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Despite rising global prices, the price of natural gas in the United States is falling due to warmer forecasts.

  • 07 March, 2022
  • 5:48 pm EET

Despite rising global prices, the price of natural gas in the United States is falling due to warmer forecasts.

Natural gas futures in the United States fell on Monday as forecasts for less cold weather and lower heating demand next week eased.

Despite rising global oil and gas prices, demand for US liquefied natural gas (LNG) exports remained high as the Russia-Ukraine war exacerbated energy supply concerns.

Gas futures in the United States, on the other hand, are protected from record European prices since the United States, the world’s largest gas producer, has enough fuel for domestic use and is constrained in its ability to export more gas as liquefied natural gas (LNG) due to capacity restrictions.

The United States is currently generating LNG at near-full capacity, so it won’t be able to create much more of the supercooled fuel no matter how high global gas prices increase. European futures (TRNLTTFMc1) have gained around 37% since Friday’s record finish, placing European prices approximately 18 times higher than U.S. futures.

Since the beginning of the year, the US gas market has largely ignored events in Europe, focusing instead on domestic weather and supply and demand, with US gas prices moving in the opposite direction of Europe more than half of the time.

However, the US market has found it difficult to ignore recent significant increases in global energy prices. Since Russia’s invasion of Ukraine on February 24, European gas futures have risen by more than 220 percent to a new high, while U.S. crude futures (CL1!) have risen by more than 42 percent to their highest level since 2008.

Prior to the Russian invasion, the US collaborated with other nations to guarantee that gas supplies, particularly LNG, continued to flow to Europe. Russia, the world’s second-largest gas producer, typically supplies 30% to 40% of Europe’s gas, which totaled 16.3 billion cubic feet per day (bcfd) in 2021.

At 9:27 a.m. EST, front-month gas futures (NG1!) were down 4.8 cents, or 1.0 percent, to $4.968 per million British thermal units (1427 GMT). The contract reached its highest level since February 2 on Friday.

Despite rising gas prices in other countries, US speculators cut their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges for the fourth week in a row, the first time since November, according to the Commitments of Traders report from the US Commodity Futures Trading Commission. These net long positions had dropped to their lowest level since January.

The average gas output in the Lower 48 states is expected to rise to 93.6 bcfd in March, up from 92.5 bcfd in February, according to data provider Refinitiv, as more oil and gas wells reopen after being frozen earlier this year. This is down from a monthly high of 96.2 bcfd in December.

With the arrival of colder weather next week, Refinitiv forecasts an increase in average U.S. gas demand, including exports, from 109.8 billion cubic feet per day this week to 115.1 billion cubic feet per day next week. The outlook for next week, on the other hand, was lower than Refinitiv’s forecast on Friday.

The amount of gas flowing to US LNG export plants has increased to 12.60 billion cubic feet per day (bcfd) so far in March, up from 12.43 billion cubic feet per day in February and a record 12.44 billion cubic feet per day in January. The United States can only convert about 12.5 billion cubic feet of gas per day into LNG. The remainder of the fuel delivered to the facilities is used to keep the plants running.

 

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