U.S. Natural Gas Futures Surge 140% as Cold Snap Slashes Supply
U.S. natural gas futures spiked to a 40-month high as extreme cold slashed production, triggered widespread freeze-offs, and sent prices soaring ahead of contract expiration.
(Reuters) — U.S. natural gas futures soared by a record 140% over the past seven days to a 40-month high on Jan. 28 in volatile trade ahead of contract expiration that forced some speculators to pay exorbitant amounts to cover short positions.
An Arctic blast boosted heating demand to near-record levels and cut output to a two-year low by freezing oil and gas wells.
On its last day as the front month, gas futures for February delivery on the New York Mercantile Exchange rose 50.6 cents, or 7.3%, to settle at $7.45 per million British thermal units, their highest close since September 2022.
Energy analysts noted the front month was so volatile on Jan. 28 - down as much as 15% and up 13% in intraday trade - because trading volume was low ahead of contract expiry.
Futures for March, which will soon be the front month, were down about 2% to $3.73 per MMBtu.
In the cash market, traders noted the brutal freeze was easing its grip on much of the country, but that it remains extremely cold in the U.S. Northeast, where next-day power prices soared by 100% to a record $314 per megawatt-hour for Jan. 28 in New England. That was just one of many price records seen in the spot power and gas markets this week.
Supply and Demand
Financial firm LSEG said average gas output in the Lower 48 states dropped to 106.1 billion cubic feet per day in January, down from a monthly record high of 109.7 billion cubic feet per day in December.
Daily output was on track to rise for a third day in a row to 97.5 billion cubic feet per day on Jan. 28 after collapsing to a two-year low of 92.5 billion cubic feet per day on Sunday due mostly to freezing wells in Texas, Louisiana and Oklahoma, according to LSEG data. That compares with a recent high of 110.0 billion cubic feet per day on Jan. 12 and an all-time daily high of 111.2 billion cubic feet per day on Dec. 21.
That means output fell about 17.5 billion cubic feet per day from January 13-25. In past winters, freezing wells, known as freeze-offs in the energy industry, have slashed gas output by massive amounts, including the loss of around 17.2 billion cubic feet per day from January 8-16 in 2024, cuts of 15.8 billion cubic feet per day from December 20-24 in 2022, and a drop of 20.4 billion cubic feet per day from February 8-17 in 2021, according to LSEG data.
Meteorologists projected weather across the country would remain mostly colder than normal through February 12, though not nearly as cold as the weekend of January 24-25.
LSEG projected average gas demand in the Lower 48 states, including exports, would fall from 169.2 billion cubic feet per day this week to 155.0 billion cubic feet per day next week. The forecast for next week was higher than LSEG's outlook on Tuesday.
On a daily basis, LSEG said total demand reached 174.9 billion cubic feet per day on January 26, which was lower than its 176.2 billion cubic feet per day forecast on Tuesday. That compares with the Lower 48 daily all-time high of 181.2 billion cubic feet per day on January 21, 2025.
Average gas flows to the eight large U.S. LNG export plants fell to 17.7 billion cubic feet per day so far in January, down from a monthly record high of 18.5 billion cubic feet per day in December.
On a daily basis, however, LNG feedgas was on track to rise for a second day in a row to 16.4 billion cubic feet per day on Jan. 28 after dropping to a one-year low of 11.5 billion cubic feet per day on Jan. 26 due to reductions at several plants during the weekend winter storm, including at Freeport LNG in Texas and Elba Island in Georgia.
In other LNG news, some energy firms took the unusual step of importing gas into the U.S. this week to capture record-high prices during the Arctic blast.