Nat Gas Steady After US-EU Deal to Ensure Western Supplies

Natural gas futures are trading slightly lower on Monday after touching its highest level since October 18 earlier in the session.

The market is being underpinned by global supply worries and robust demand for U.S. exports. Additionally, on Friday, the Biden administration and European Union (EU) leaders announced a new effort to ensure Western supplies of natural gas to the continent through 2022 and beyond.

The United States and the EU now have a joint goal to send an additional 15 billion cubic meters of LNG to EU countries in 2022 – about 1.5 Bcf/d – with “expected increases going forward,” according to the White House, Natural Gas Intelligence (NGI) reported.

At 10:09 GMT, May natural gas futures are trading $5.600, down $0.011 or -0.20%. On Friday, the United States Natural Gas Fund (UNG) settled at $19.48, up $0.51 or +2.69%.

Increasing Domestic Supply Issues

Beside Europe, the United States could face could face its own short-term supply challenges, according to analysts.

U.S. utilities withdrew 51 Bcf natural gas from storage for the week-ended March 18, the Energy Information Administration (EIA) reported Thursday. This lowered inventories to 1,389 Bcf, leaving stocks well below the five-year average of 1,682 Bcf.

At the same time, Bespoke Weather Services noted, U.S. production has in recent weeks held well below early-2022 and late-2021 highs. It also said long-range forecasts point to a hot summer and strong cooling demand.

Should heat prove intense in the season ahead and LNG exports hold at record levels, U.S. producers would have to boost output to keep pace with demand and provide room for utilities to restock inventories ahead of next winter, the firm said.

“The longer we go without even getting back to year-to-date highs, the more difficulty we see in comfortably refilling storage by the end of injection season, especially when factoring in our expectation of a hotter summer,” Bespoke said.

Daily Forecast

Friday’s price jump suggests the US – EU liquefied natural gas (LNG) was likely priced in so we’re not expecting much more upside related to this event at this time.

Furthermore, U.S. exporters of LNG are already maxing out and have little room to ramp up more in the near term. Additionally, Western governments do not have the power to order private companies in the LNG market to direct shipments to Europe.

In order to make the deal work, the US is going to have to figure out a way to work with Europe to provide a roadmap to maximize deliveries to the continent. One way they could do this is have European countries pay a premium to secure shipments from the U.S. that would otherwise be headed to Asia.