Natural gas drops as Europe rushes to resolve crisis, US spring calls

The spring thaw is slowly setting in across the United States as temperatures warm. Europe’s energy crisis also seems less urgent two weeks after the invasion of Ukraine. The combined effect: falling US prices despite strong drawdowns on domestic LNG storage and demand.
Gas futures on New York’s Henry Hub fell for a third straight day on Wednesday, heading for a near-double-digit weekly loss at the time of writing as forecast changes day-to-day weather does not take into account the strength of the cold remaining in March.
Wednesday’s temperature change removed some five billion cubic feet (bcf) from projected demand over the next two weeks, adding to Tuesday’s disappearance of 35 bcf, experts said.
In the meantime, falling gas prices in Europe add to the weight of the Henry Hub as shorts exploit the cross-border relationship between the two markets which have become increasingly connected in sentiment since the invasion of the ‘Ukraine.
Monday’s 4% capitulation on the US side came after Chancellor Olaf Scholz assured that Germany would not impose any bans on Russian gas imports. His statement sent TTF Gas Futures in the Netherlands – Europe’s top exchange – plunging from $68 to $50 as some of the fear premium built into the market over the security of the bloc’s energy supplies disappeared.
Houston-based energy consultancy Gelber & Associates emailed its natural gas-exposed clients on Wednesday warning them that upside risk still exists on the TTF; although much of its future movement will likely depend on the geopolitical actions of major Russian and European players in relation to climate change.
“While the Henry Hub’s upside exposure to European prices remains capped due to US export capacity limitations, downside exposure is a very different beast,” said Gelber analyst, Dan Myers, in the email, seen by I.nvesting.com.
Myer added:
“The fall in European prices has the potential to still impact US markets to some extent, as gradual downward moves in European prices will affect US LNG capacity utilization more than gradual changes in rising price.”
“It seems likely that near-term price weakness at the Henry Hub could continue to occur as market prices reduce domestic demand for natural gas in March, as well as higher expected gas production on the curve due to high oil prices.”
The U.S. oil benchmark jumped 26% for the week ended March 4 in response to sweeping Western sanctions against Russia that analysts say will indirectly affect Moscow’s crude exports. WTI continued to rise early in the week to hit 14-year highs above $130 a barrel before dropping double digits on Wednesday in the first sharp decline since the outbreak of war in Ukraine.
Gelber’s caution preceded that on natural gas scheduled for Thursday by the American Energy Administration of information.
Source: Gelber & Associates
Analysts followed by invest.com expect a drawdown of 117 billion cubic feet for the week ended March 4, compared to a drawdown of 59 billion cubic feet in the same week a year ago and a five-year average drawdown (2017- 2021) of 89 billion cubic feet.
It would be the ninth week in a row that weekly utility gas consumption exceeded 100 billion cubic feet, with four of those weeks resulting in withdrawals exceeding 200 billion cubic feet.
In the week to Feb. 25, utilities pulled 123 billion cubic feet of gas from storage.
If consensus analyst forecasts are in line with target, the pullback during the week ended March 4 would reduce inventories to 1.526 trillion cubic feet (tcf), about 15.6% below the five-year average and 15 .2% less than the same week a year ago. .
Last week’s weather was warmer than normal with 146 heating degree days (HDD), compared to a 30-year normal of 154 HDD for the period, according to Refinitiv data.
The hard drives, used to estimate heating demand for homes and businesses, measure the number of degrees per day when the average temperature is below 65 degrees Fahrenheit (18 degrees Celsius).
Gelber’s Myers said storage withdrawals are expected to decrease in size as the cold weather eases through the end of March.
“The first injection of the year could very well take place as early as March 25 if the weather forecast continues to improve,” he wrote in his email.
Rystad Energy’s Vice President for Gas Markets, Sindre Knutsson, was of a similar view.
“The market is now anticipating the end of the winter season. Forecasts point to comfortably above normal temperatures,” Knutsson said in comments carried by industry portal naturalgasintel.com.
Bespoke Weather Services said US supplies were sufficient for indoor needs, and with the market heading into the spring shoulder season, heating demand was almost certain to decline rapidly.
“We’ve finally seen the natural gas market decouple from the movements of the rest of the energy complex, which we believe should have happened sooner, but it’s always hard to predict those kinds of times when you have headlines. that impact all markets,” Bespoke said in the comments.
According to Refinitiv data, the amount of gas flowing to U.S. liquefied natural gas export plants has risen to 12.59 billion cubic feet per day (bcfd) so far in March, from 12.43 billion. cubic feet per day in February and a record 12.44 billion cubic feet per day in January.
The US is exporting record amounts of LNG as global gas prices trade 12 times higher than US futures amid the Russia-Ukraine dispute.
Warning: Barani Krishnan uses a range of viewpoints outside of his own to bring diversity to his analysis of any market. For neutrality, it sometimes presents opposing views and market variables. He does not hold a position in the commodities and securities he writes about.