NatGas Moves Higher on Steady LNG Export Demand

Volatility ahead of the expiration of the May futures contract and expectations of steady demand for U.S. liquefied natural gas (LNG) are helping to drive U.S. natural gas futures higher on Wednesday. The market has shown early strength this week, following last week’s steep decline.

Last week’s weakness was likely fueled by profit-taking since the fundamentals remain well-skewed to the bullish side. They include relatively low production levels, a lingering storage deficit and steady demand from Europe for LNG. This week’s recovery confirms investors are still in the “buy the dip” mode.

At 14:29 GMT, June natural gas futures are trading $7.360, up $0.382 or +5.47%. The United States Natural Gas Fund ETF (UNG) is at $25.29, up $1.47 or +6.17%.

LNG Volumes Rising

Recent indicators of liquefied natural gas (LNG) exports, showing volumes reaching a three-week high, could lend support for prices, according to EBW Analytics Group senior analyst Eli Rubin observed.

“Concluding maintenance at Freeport LNG and a new high for Calcasieu Pass intake suggest recent strength in NYMEX pricing may continue near-term,” Rubin said.

Threats of Disruptions to Russian Imports into Europe Point to Upside Risks

Russia halted gas supplies to Bulgaria and Poland on Wednesday for rejecting its demand for payment in roubles, taking direct aim at European economies in its toughest retaliation so far against international sanctions over the war in Ukraine, according to Reuters.

The step was denounced by European leaders as “blackmail”, and comes as European countries have joined the United States in ramping up arms shipments to help Ukraine fend off a new Russian assault in the east.

Moscow says the gas cut-off is to enforce its demand for payment in roubles, which would help to soften the effect of sanctions on its economy. Kremlin spokesperson Dmitry Peskov said Russia was a reliable energy supplier and denied it was engaging in blackmail.

Gazprom, the Russian gas export monopoly, said it had “completely suspended gas supplies” to the Polish and Bulgarian gas companies “due to absence of payments in roubles”.

Short-Term Outlook

With imports into Europe already showing signs of decline, the prospect of a further drop in supplies should maintain the steady demand for U.S. LNG imports into the continent. This should underpin U.S. natural gas prices into the summer.

While LNG demand provides the support, the threat of a storage deficit at the beginning of the summer cooling season could continue to push prices higher. The key fundamental controlling this problem is natural gas output. This will be a potentially bullish development throughout the summer unless producers start to ramp up output.