U.S. natural gas futures jumped almost 7% on Tuesday as short sellers took some profits after the contract dropped about 16% during the prior three sessions and as higher global prices keep demand for U.S. liquefied natural gas (LNG) exports strong. That price increase came despite rising output and forecasts for milder weather and lower heating demand next week than previously expected.
In October, global gas prices soared to record highs as utilities scramble for LNG cargoes to refill low stockpiles in Europe and meet rising demand in Asia, where energy shortfalls have caused power blackouts in China. U.S. futures also climbed, reaching a 12-year high in early October, on expectations LNG demand will remain strong for many months. Price gains in the United States, however, were restrained compared with overseas markets because the United States has more than enough gas in storage for winter and ample production to meet domestic and export demand.
Prices in Europe and Asia were about four times higher than in the United States. Analysts expect U.S. gas inventories will top 3.6 trillion cubic feet (tcf) by the start of the winter heating season in November, which they said would be a comfortable level even though it falls shy of the five-year average of 3.7 tcf. U.S. stockpiles were currently about 3% below the five-year average for this time of year. In Europe, analysts said stockpiles were about 15% below normal.
Front-month gas futures rose 35.6 cents, or 6.9%, to settle at $5.542 per million British thermal units (mmBtu).
On Monday, the contract closed at its lowest since Oct. 21. The Biden administration unveiled plans to slash emissions of the greenhouse gas methane across the United States, starting with oil and gas wells, pipelines and other infrastructure as part of its broader climate change strategy.
Data provider Refinitiv said output in the U.S. Lower 48 states averaged 94.9 billion cubic feet per day (bcfd) so far in November, up from 94.1 bcfd in October. That compares with a monthly record of 95.4 bcfd in November 2019. Refinitiv projected average U.S. gas demand, including exports, would hold around 96.4 bcfd this week and next.
The forecast for next week was much lower than what Refinitiv projected on Monday. The amount of gas flowing to U.S. LNG export plants averaged 11.0 bcfd so far in November, up from 10.5 bcfd in October. That compares with a monthly record of 11.5 bcfd in April. With gas prices near $23 per mmBtu in Europe and $29 in Asia, versus around $6 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States can produce.
No matter how high global gas prices rise, the United States has the capacity to turn only about 10.5 bcfd of gas into LNG. The rest of the gas flowing to the export plants is used to fuel equipment that produces the LNG. Global markets will have to wait until later this year to get more, when the sixth liquefaction train at Cheniere Energy Inc's Sabine Pass and Venture Global LNG's Calcasieu Pass in Louisiana start producing LNG in test mode.
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