US natgas futures soar 119% over five days as freezing wells cut output to two-year low, short covering

By Scott DiSavino

NEW YORK, Jan 26 (Reuters) - U.S. natural gas futures soared by a record 119% over five days to a three-year high on Monday after an Arctic blast over the weekend boosted heating demand and cut production to a two-year low by freezing oil and gas wells and pipes, despite a drop in gas flows to liquefied natural gas (LNG) export plants.

On Monday, front-month gas futures for February delivery NGc1 on the New York Mercantile Exchange (NYMEX) rose $1.53, or 28.9%, to settle at $6.80 per million British thermal units (mmBtu), putting the contract on track for its highest close since December 2022.

In addition to soaring demand and the drop in output, energy traders noted prices exploded higher because some speculators were caught short February futures and were being forced to buy back the contracts at exorbitant prices before they expire on January 28. Futures prices soared by as much as 41% to $7.439 per mmBtu in intraday trade on Monday.

"While a massive wave of speculator short covering was a key contributor, the key near-term risks for NYMEX futures going forward are how quickly production recovers and whether frigid cold will return into mid-February," analysts at consultancy EBW Analytics Group said in a note.

In the cash market, next-day gas and power prices soared to multi-year highs in several parts of the country, including a 265% gain at the U.S. Henry Hub benchmark NG-W-HH-SNL in Louisiana to a record $30.72 per mmBtu, and a 379% gain at the Eastern Gas hub NG-PCN-APP-SNL in Pennsylvania to a record $40.00.

In other gas hubs, prices soared to the highest since January 2018 in New England NG-CG-BS-SNL and New York NG-CG-NY-SNL, their highest since February 2021 in Chicago NG-CG-CH-SNL and their highest since January 2024 at the Waha NG-WAH-WTX-SNL in West Texas.

In the power market, next-day prices soared to their highest since January 2014 in New England E-NEPLMHP-IDX and PJM West E-PJWHRTP-IX in Pennsylvania and Maryland.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the Lower 48 states dropped to 106.9 billion cubic feet per day (bcfd) so far in January, down from a monthly record high of 109.7 bcfd in December.

On a daily basis, output fell to a two-year low of 92.6 bcfd on Sunday due mostly to freezing wells in Texas and Louisiana, according to LSEG data. That compares with a recent high of 110.0 bcfd on January 12 and an all-time daily high of 111.2 bcfd on December 21.

That means output fell about 17.4 bcfd 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 bcfd from January 8-16 in 2024, cuts of 15.8 bcfd from December 20-24 in 2022, and a drop of 20.4 bcfd from February 8-17 in 2021, according to LSEG data.

Even though meteorologists projected weather across the country would remain mostly colder than normal through February 10, energy analysts noted that output was on track to increase to 95.5 bcfd on Monday now that the coldest days were likely in the past.

LSEG projected average gas demand in the Lower 48 states, including exports, would fall from 168.9 bcfd this week to 153.4 bcfd next week. Those forecasts were lower than LSEG's outlook on Friday.

On a daily basis, LSEG reduced its total demand forecast for January 26 to 178.6 bcfd on Monday, down from 181.4 bcfd on Friday due in part to the decline in gas flows to LNG export plants. If correct, total daily gas demand would remain below the all-time high of 181.2 bcfd set on January 21, 2025.

Average gas flows to the eight large U.S. LNG export plants fell to 17.9 bcfd so far in January, down from a monthly record high of 18.5 bcfd in December.

On a daily basis, LNG feedgas was on track to rise to 13.5 bcfd on Monday after dropping to a one-year low of 12.1 bcfd on Sunday due to reductions at all plants, including Freeport LNG in Texas and Elba Island in Georgia.