US natural gas futures rose around 3% on Tuesday after falling for three days during a period of record volatility on forecasts for a little colder weather and higher heating demand over the next two weeks than previously expected.
That price move higher came despite a slow increase in output following weeks of reductions due to freezing wells and pipes.
Front-month gas futures for March delivery rose 12.1 cents, or 2.9%, to $4.353 per million British thermal units (mmBtu) at 8:32 a.m. EST. On Monday, the contract closed at its lowest since Jan. 25.
In the spot market, frigid weather and high heating demand in the U.S. Northeast since the start of 2022 has kept next-day power and gas prices in New York and New England at or near their highest levels since January 2018, prompting power generators there to burn lots of oil and liquefied natural gas (LNG).
Data provider Refinitiv said 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 90.4 bcfd in February after wells in several regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota and the Appalachia in Pennsylvania, West Virginia and Ohio. February's average was higher than it was on Monday due to an expected output rise on Tuesday.
Even though the forecasts were colder than previously expected, meteorologists still expect it will be less cold next week than this week.
Refinitiv projected average U.S. gas demand, including exports, would drop from 130.6 bcfd this week to 122.3 bcfd next week. Those forecasts were higher than Refinitiv's outlook on Monday because the weather was expected to be colder than previously expected.
The amount of gas flowing to U.S. LNG export plants was on track to rise to 12.5 bcfd in February from a monthly record of 12.4 bcfd in January as liquefaction trains at Venture Global LNG's Calcasieu Pass export plant in Louisiana enter service. A vessel arrived near Calcasieu on Monday and could pick up the plant's first LNG cargo this week.
Traders said demand for U.S. LNG would remain strong so long as global gas prices remained well above U.S. futures as utilities around the world scramble for cargoes to meet surging demand in Asia and replenish low stockpiles in Europe - especially with the threat Russia could invade Ukraine and cut gas supplies to Europe.
Russia supplied Europe with about 16.3 bcfd of gas in 2021, representing 35%-40% of the continent's supply, according to analysts and U.S. energy data.
Gas prices were trading around $27 per mmBtu in Europe and $25 in Asia, compared with just $4 in the United States. But no matter how high global gas 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.