Cold temperatures in the United States and Europe have led to a spike in U.S. natural gas prices. This price increase, though cautious, may help prevent a potential shortage in the near future.
Winter is the peak season for natural gas demand, as the need for electricity soars. This year, demand has been particularly high. In Germany, natural gas consumption jumped 79% in November compared to October, marking the largest monthly increase ever recorded, according to Reuters’ Gavin Maguire.
Germany, like much of Europe, relies heavily on liquefied natural gas (LNG) imports from the United States, which has driven up demand for U.S. gas as well. This trend has been noticeable. By the end of November, demand for natural gas from liquefaction plants along the U.S. Gulf Coast spiked to nearly record levels, reaching 14.6 billion cubic meters in a single day. This was the highest daily demand since the start of the year, just shy of the 14.7 billion cubic meters recorded in December of the previous year. With low wind speeds in Europe continuing, there’s still a chance that demand could break that record.
The low wind speeds in Europe have been partly responsible for the surge in natural gas generation, as well as an increase in coal generation. However, wind patterns are unpredictable, especially during winter, which means gas demand is likely to rise further. As a result, U.S. natural gas prices are expected to continue climbing, despite remaining vulnerable to any negative market news.
This vulnerability was evident earlier this week when forecasts for warmer-than-expected weather in much of the U.S. caused traders to sell off their positions, briefly dropping prices to a two-week low. However, speculators have been busy reversing their short bets on natural gas, anticipating higher demand. As a result, their net position has shifted from a short position of 23 billion cubic feet to a net long position of 664 billion cubic feet, according to energy analyst John Kemp.
Meanwhile, the North Sea crude market saw a record number of trades on Monday, with eight cargoes for delivery in the second half of December exchanged. This is the highest number on record since Bloomberg began tracking data in 2008. Among the traded cargoes were various grades of crude, including WTI Midland, Brent, Forties, Oseberg, and Johan Sverdrup, with buyers including TotalEnergies, Trafigura, and BP.
These large trades could influence the Brent Crude benchmark, which is influenced by the value of North Sea crudes such as Brent, Troll, Ekofisk, Forties, and Oseberg, as well as U.S. WTI Midland, which was added to the benchmark in 2023.
The surge in U.S. gas prices comes amid record-high gas storage levels, with the U.S. Energy Information Administration (EIA) reporting that gas storage in the Lower 48 states reached 3.992 trillion cubic feet at the end of the injection season— the highest level since 2016. However, gas production is declining due to the prolonged slump in prices, and with rising demand and shrinking output, these storage levels will likely not last long, even with mild weather forecasts.
The sooner this imbalance between supply and demand drives prices higher, the better for future supply security. Historically, it takes several months for production to catch up with rising demand after prices climb, as producers respond to higher prices by increasing output. If this response is delayed, the risk of a supply shortage increases—especially as demand for natural gas grows beyond seasonal needs.
In addition to traditional uses, natural gas producers are in talks with major tech companies to secure reliable power for their data centers. These companies are committing to future gas production to meet growing energy needs, estimated at 3 to 6 billion cubic feet per day, according to S&P Global Ratings. As demand for electricity from data centers is expected to rise by 12% annually through 2030, U.S. natural gas prices are unlikely to stay low for long. If these forecasts prove accurate, it could be some time before gas prices drop again due to abundant supply.
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