Two-day surge of over 50%! U.S. natural gas prices skyrocket: Cold wave hits the entire U.S., major gas-producing areas face interruption test.

Due to a cold spell set to sweep through large areas of the United States, natural gas futures prices soared over 50% in just two days, poised to mark the largest single-week increase in over thirty years. A blizzard is set to hit the United States starting on Friday, with Texas set to experience severe cold temperatures, followed by snowfall in New York City and Boston. The severe weather may cause water to freeze inside natural gas pipelines, potentially affecting natural gas production - a situation that proved disastrous for Texas in 2021 when a natural gas supply disruption due to extreme cold weather led to a collapse of the state's power grid. According to the commercial weather forecasting agency Commodity Weather Group, weather models for two-thirds of the Eastern United States in early February show temperatures plummeting overnight, signaling an increase in demand for heating sources. Jonathan Porter, Chief Meteorologist at AccuWeather Inc., said, "This is likely to be the most impactful storm of the winter so far." Natural gas futures for February delivery closed up 25% at $4.875 per million British thermal units, reaching the highest settlement price for near-month contracts since December 8, and quickly breaking the $5 per million British thermal units mark soon after closing. As of this week, natural gas prices in the United States have risen by a cumulative 57%. The exchange operator, the CME Group, reported a record single-day trading volume of over 2.5 million contracts in its natural gas trading segment on January 20. Darrell Fletcher, Managing Director of Commodities at Bannockburn Capital Markets working in the market since 1995, said, "I've seen a lot of volatility, but such drastic fluctuations within two days are not common." Over the weekend, bearish sentiment on natural gas prices intensified among hedge funds as weather forecasts were revised, leading traders to close out positions, with the market poised for a rebound. According to data from Bridgeton Research Group, algorithmic traders betting on price trends reached a peak short position on January 5. Bridgeton reported that these traders' short positions dropped from 100% on Tuesday night to 64% on Wednesday morning. The surging natural gas prices have posed problems for already struggling American consumers, and the continuously rising energy bills have become a heavy burden for politicians, including former President Trump. But for American natural gas producers, this is a boon, especially for those producers who have not locked in most of their planned production volumes through financial hedging. On Wednesday, the stock prices of major American natural gas producers Expand Energy (EXE.US) and EQT (EQT.US) rose again, up 6.6% and 7.1% respectively, following the broader market trend. Rising natural gas prices may stimulate coal consumption, as power producers may reduce natural gas burning and increase coal burning to control fuel costs. According to the U.S. Energy Corp., natural gas electricity generation in the United States is expected to decrease by 4% by 2025, while coal electricity generation will increase by 13%, mainly due to the increased competitiveness of coal as natural gas prices rise. Analysts point out that the severe cold weather is expected to lead to the withdrawal of natural gas from storage facilities for home and business heating, approaching historical highs. It is currently estimated that by the end of March, domestic natural gas inventories in the United States will be below the five-year average level, with a rapid decline of 3.4% compared to the current surplus. AccuWeather predicts that this Arctic cold front will bring heavy snow and freezing weather to over 150 million people in more than twenty states in the United States, with snow depths in some areas of the Appalachian Mountains potentially reaching up to two feet. This region is home to one of the largest natural gas producing areas in the United States - the Marcellus Shale gas basin. Jeremy Knop, Chief Financial Officer of the second largest natural gas producer EQT, said in an email that during the upcoming winter storm period, the company will "work around the clock to ensure production continues." It is expected that Texas will experience severe cold weather over the weekend. The state has significant natural gas production facilities, and its infrastructure's ability to withstand cold weather is weak, increasing the risk of temporary shutdowns of natural gas and reduced exports. The United States is the world's largest exporter of liquefied natural gas, with liquefied natural gas supply to export terminals currently accounting for 17% of total U.S. natural gas production. Dennis Kissler, Senior Vice President of BOK Financial Securities Inc., noted in a report to clients that the U.S. natural gas market is "trying to incorporate disruption factors in production from Kansas, Oklahoma, and as far as the Permian Basin in West Texas into pricing." Contract prices for near-month delivery have also soared. According to traders, the spot price of remaining contracts for January at the Louisiana Henry Hub Group, Inc. Class A trading point (a benchmark for U.S. futures) surged to over $11 per million British thermal units on Wednesday morning, compared to around $7 on Tuesday and below $4 over the weekend. Traders reported that contract prices briefly spiked to between $18 and $19 per million British thermal units over the weekend. Although the surge in natural gas prices at the Henry Hub Group, Inc. Class A may render U.S. liquefied natural gas exports unprofitable, the sustainability of the high prices remains uncertain. Data shows that although repairs have been made to pipelines transporting natural gas to export facilities in Louisiana owned by Cheniere Energy (LNG.US), the volume of natural gas transported through the pipelines to the export factories in the United States has remained nearly unchanged on Wednesday. The cold weather is causing global energy prices to soar. Electricity prices in Japan reached their highest in three months on Wednesday, and European natural gas futures prices also surged. The market is closely watching the potential weakening of the polar vortex, which traps cold air in the Arctic. Once weakened, temperatures could further plummet. Any production disruptions in the United States could impact Europe, where reliance on U.S. liquefied natural gas has deepened since substantial cuts in liquefied natural gas supply to Europe following the Russia-Ukraine conflict. According to atmospheric meteorology company G2 forecasts, average temperatures in Asia (where other liquefied natural gas buyers are located) are expected to remain below normal levels over the weekend. On Wednesday, European natural gas prices surpassed 40 per megawatt hour for the first time since June, with prices rising by over 40% year-to-date. Meanwhile, traders are grappling with concerns over the unusually cold global temperatures in the past two weeks. There have been significant fluctuations in the European natural gas market as fuel stocks rapidly decline, raising concerns about the region's fragile supply balance and disrupting market sentiment.