U.S. Natural Gas Prices Surge On Lower Output, Higher LNG Flows

U.S. natural gas prices surged on Tuesday, with a combination of declining domestic output and an improving demand outlook helping the gas market break past prior downward pressure from seasonal maintenance. Henry Hub, the primary benchmark price for the North American natural gas market, spot gas prices jumped 5.1% to trade at 3.06/MMBtu in Tuesday’s mid-day session, with gas prices now trading nearly 16% higher over the past month.

Average gas output in the U.S. Lower 48 states slipped to 109.2 billion cubic feet per day (bcfd), with energy firms dialing back production following a prolonged period of low spot prices. Daily production fell by roughly 4.0 bcfd to a 15-week low of 106.1 bcfd, primarily led by declines in Pennsylvania and Arkansas. Meanwhile, feedgas flows to liquefied natural gas (LNG) facilities have begun recovering after spring maintenance at major facilities like Freeport LNG and Golden Pass initially restricted flows to 17.0 bcfd earlier in the month. Total LNG export demand clocked in at roughly 3.0 bcfd higher year-over-year over the past 30 days, with projections that total feedgas flows will climb steadily through the summer and potentially reach up to 22 bcfd by year-end. Additionally, the early arrival of cooling degree days (CDDs) across the East and South East has boosted cooling demand at a time when the Middle East has restricted competing global LNG flows. This has added a structural risk premium to U.S. contracts as European and Asian buyers aggressively bid for American cargoes.

However, the gas rally is likely to be capped by above-average storage injection. The EIA recently reported a 101 billion cubic feet (bcf) build in storage, exceeding analyst consensus estimates of a 95-bcf injection. The latest build has raised total working gas inventories to 2,391 Bcf, placing stocks 6.6% above the prior five-year average. Gas prices are expected to face strong resistance around the $3.20/mmBtu mark, with analysts projecting that further gains will require extended heatwaves or a sharper drop in production.

By Alex Kimani for Oilprice.com

More Top Reads From Oilprice.com