U.S. Natural Gas Prices Hit 37-Month High as Freeze-Offs Cut Supply
U.S. natural gas futures climbed to their highest level in more than three years as extreme cold triggered production freeze-offs, tightened supply and pushed utilities toward heavier storage withdrawals.
(Reuters) — U.S. natural gas futures soared to a 37-month high on Jan. 22, marking a record 79% rise over the past three days, on forecasts that extreme cold over the next two weeks will boost heating demand to near-record levels while at the same time cutting output by freezing oil and gas wells.
Front-month gas futures for February delivery on the New York Mercantile Exchange (NYMEX) jumped 67.2 cents, or 13.8%, to $5.547 per million British thermal units (MMBtu), putting the contract on track for its highest close since December 2022.
Traders said the market was mostly ignoring the expected release of a federal report that showed a smaller-than-usual storage withdrawal last week when mild weather kept heating demand low.
The U.S. Energy Information Administration (EIA) said energy firms pulled 120 billion cubic feet (Bcf) of gas out of storage during the week ended Jan. 16.
That reading was bigger than the 106-Bcf withdrawal analysts forecast in a Reuters poll, but below a decline of 228 Bcf during the same week last year and an average withdrawal of 191 Bcf over the past five years (2021-2025).
Even though that smaller-than-usual withdrawal left stockpiles about 6% above normal levels for this time of year, analysts said utilities will likely wipe out that excess inventory and pull massive amounts of gas from storage to provide fuel to keep homes and businesses warm over the next two weeks of extreme cold.
Supply and Demand
Financial firm LSEG said average gas output in the Lower 48 states has slid to 108.6 billion cubic feet per day (billion cubic feet per day) so far in January, down from a monthly record high of 109.7 billion cubic feet per day in December.
On a daily basis, output was on track to drop to a three-month low of 106.1 billion cubic feet per day on Thursday due mostly to reductions in North Dakota and Oklahoma, according to LSEG data, down from a recent high of 110 billion cubic feet per day on Jan. 12 and an all-time daily high of 111.2 billion cubic feet per day on December 21.
Analysts noted some of the output decline seen so far this week - down about 3.9 billion cubic feet per day since Jan. 12 - was due to freezing oil and gas wells, known in the energy industry as freeze-offs.
In past winters, freeze-offs 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 the 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 Feb. 6, with the most frigid days expected around Jan. 24-31.
LSEG projected average gas demand in the Lower 48 states, including exports, would rise from 152.4 billion cubic feet per day this week to 162.1 billion cubic feet per day next week. Those forecasts were higher than LSEG's outlook on Jan. 21.
With temperatures forecast to average just 22.0 degrees Fahrenheit (-5.6 Celsius) across the country on Jan. 24 and continue averaging in the low 20s F through Jan. 31, LSEG projected total demand, including exports, would reach 180.6 billion cubic feet per day on Jan. 26. That demand forecast was higher than LSEG's outlook on Jan. 21.
But that figure would fall just short of the Lower 48 daily demand record of 181.2 billion cubic feet per day set on January 21, 2025, when temperatures across the country averaged just 19.4 F, according to LSEG data.
Average gas flows to the eight large U.S. LNG export plants have held at 18.5 billion cubic feet per day so far in January, matching the monthly record high set in December.
In other LNG news, shares of Venture Global surged nearly 8% on Thursday after an arbitration tribunal ruled in favor of the U.S. LNG producer in a dispute with Spanish energy firm Repsol.