U.S. natural gas prices peaked this Tuesday 2% to a seven-year-high record, as global demand for U.S. liquified natural gas exports remains strong. Mainly due to tight supply in Europe and Asia. According to Reuters, prices were so volatile during the early trading session that they rose 10% for the second day in a row.
Firstly, the demand for U.S. LNG remains very strong in Europe and Asia, despite forecasts for milder weather and lower demand than previously expected over the next two weeks. Today, the last day of the front month, gas futures for October delivery rose 13,5 cents, or 2,4%, and settled at $5.841 per million British thermal units (mmBtu). Such an amount is the highest close since February 2014, according to Reuters.
Moreover, the November futures were also up about 13 cents, to $5.85 per mmBtu. In fact, Premiums of futures for November 2021 over October 2021 and March 2022 over April 2022 both rose to record highs this week.
In contrast, gas prices in Europe and Asia are trading at around $29 per mmBtu, while in the U.S. they are around $6 per mmBtu. Consequently, traders say they will keep purchasing all of the LNG from the U.S. they are capable of. However, there is a roof for exports. In fact, the U.S. exports around 10% of the LNG it produces.
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U.S. natural gas production ceiling keeping Henry Hub prices from rising to the moon
In addition, there is also the capacity roof of around 10,5 bcfd of natural gas that the U.S. can turn into LNG. Consequently, the global markets will have to wait until later this year to get more from the United States. As only then the sixth liquefaction train at Cheniere Energy Inc’s Sabine Pass and Venture Global LNG’s Calcasieu Pass in Louisiana will start producing LNG in test mode.
As a result, natural gas prices did not spike to the roof. Sheetal Nasta at RBN Energy, noted. “The U.S. LNG export capacity ceiling is likely the only thing reining in Henry Hub prices from following European and Asian gas/LNG prices to the moon.” He also noted that “as explosive as Henry Hub futures are these days, if not for the capacity constraint, they would be much higher.”
Finally, with cooler than expected weather, the U.S. gas demand, including exports, would rise from 81.8 bcfd this week to 82.8 bcfd next week, Refinitv data shows. However, those forecasts were lower than Refinitiv projected on Monday.