Natural Gas Prices Surge Past US$4/MMBTU Due to Arctic Cold

US natural gas futures surged above US$4MMBTU on Wednesday, driven by Arctic cold that has increased heating demand and raised concerns about supply disruptions. The Henry Hub front-month futures price reached US$4.25/MMBTU in early trading, marking the first time since Jan. 24 that prices have crossed the US$4 threshold.

An incoming Arctic blast has intensified heating demand, with US natural gas consumption currently at 122.9Bcf/d, a 21% increase compared to the same period last year. According to Maxar’s forecast models, colder-than-expected temperatures are expected across the central and eastern United States through early March. The surge in demand has led to increased market volatility, with traders monitoring potential production freeze-offs that could tighten supply further.

On the supply side, US dry gas production stands at 106.1Bcf/d, slightly above last year’s levels. However, extreme weather events pose risks to production stability. The latest data from the US Energy Information Administration (EIA) reported a storage draw of 100Bcf for the week ending Feb. 7, surpassing market expectations of a 91Bcf decline. US gas inventories remain 2.8% below the five-year seasonal average, adding to concerns about market tightness.

European natural gas futures have remained volatile. The European Union is under pressure to replenish gas storage ahead of winter, with current reserves below 45% full, compared to 67% at the same point last year. Germany, France, and Italy have proposed adjustments to EU storage requirements to stabilize the market. The continent's seasonal draw has exceeded that of the past two winters due to colder weather, lower wind power generation, and the end of Russian gas imports via Ukraine.

Despite short-term weather-driven price fluctuations, broader factors such as international demand and policy decisions could influence market dynamics. Some analysts suggest that fears over US trade policies, including potential tariffs under Donald Trump, could impact global energy markets. Trump has advocated for a stronger US dollar, which could reduce international demand for American natural gas. With winter conditions driving demand and storage levels tightening, natural gas prices are expected to remain under pressure in the coming weeks, with traders closely watching supply trends and policy developments.

Mexico’s Dependance on US Natural Gas

In Mexico, gas-based power plants account for approximately 62% of the total energy generation mix. A reduction in supply, coupled with increased demand, could lead to shortages, as experienced in 2021. 

Previously, Fitch Ratings had warned that the growing volatility in natural gas prices in North America may put pressure on margins and working capital requirements for CFE. The firm warned that CFE faces exposure to shortages and fluctuations in both natural gas prices and foreign exchange rates. 

Mexico relies almost entirely on natural gas imports from the United States to supply its market. To mitigate some of the effects of high natural gas prices, additional subsidies are often necessary to offset increases in fuel prices.