Nat Gas Lifted by Persistent Winter Weather, European Demand

Natural gas futures retreated on Thursday after giving back earlier gains. The market was strong from the start, chasing European prices higher for a third straight session as the conflict between Russia and Ukraine continued to stoke energy supply concerns.

However, prices weakened into the close after gas futures at the Title Transfer Facility (TTF) in the Netherlands dropped as much as 22% on Thursday, after soaring over 100% since Russia invaded Ukraine on February 24.

On Thursday, April natural gas futures settled at $4.722, down $0.40 or -0.84%.

Traders are also pricing in at least one more bout of winter chill. According to meteorologist Chris Radda of IBM’s The Weather Company, a cold front appeared likely to deliver much cooler air late next week – with highs in the 20s across parts of the Midwest and East.

Reuters:  Higher Gas Prices Will Boost Demand for US LNG Exports for Months

In recent months, the U.S. gas market has mostly shrugged off what was happening in Europe, focusing more on domestic weather and supply and demand. Since the start of 2022, gas prices in the United States have moved in the opposite direction of Europe more than half the time.

That is different than during the fourth quarter of 2021 when U.S. futures followed European prices about two-thirds of the time.

But it has been hard for the U.S. market to ignore the massive gains in global oil and gas prices in recent days – especially since those higher gas prices will keep demand for U.S. liquefied natural gas (LNG) exports strong for months.

So, the United States worked with other countries, before the Russian invasion, to ensure that gas supplies, mostly from LNG, would keep flowing to Europe. Russia, the world’s second-biggest gas producer, usually provides around 30% to 40% to Europe’s gas, which totaled about 16.3 billion cubic feet per day (bcfd) in 2021.

US Government Reports Bigger-than-Usual Storage Withdrawal

The U.S. Energy Information Administration (EIA) said utilities pulled 139 billion cubic feet (Bcf) of gas from storage during the week-ended February 25. This was mostly in line with expectations.

The decrease for last week lowered inventories to 1,643 Bcf, according to the EIA. That compared with the year-earlier level of 1,859 Bcf and the five-year average of 1,898 Bcf.

Ahead of the report, Reuters and Bloomberg polls both landed at a median withdrawal estimate of 141 Bcf. The Wall Street Journal survey found an average expectation for a 139 Bcf decrease.

Short-Term Outlook

Natural Gas Intelligence (NGI) reported that after a break beginning Friday, Bespoke forecast chilly conditions over most of the Lower 48 in coming days and through mid-March. “We suspect the colder regime remains in place” until March 20 at least, after which milder air is likely “to take hold.”

Additionally, the war in Ukraine presents enormous uncertainty that looms large over the energy sector. U.S. LNG export levels have been strong this week, reflecting in large part robust demand from Europe that could intensify amid Russia’s invasion, NGI reported.