NatGas Soars on Cold Weather Outlook

Natural gas futures (NG) surged 16.35% on Monday, 30 December, as funds leapt into a buying spree on the heels of a colder-than-expected weather outlook for the next two weeks.

The rise in natural gas prices marked the biggest gain in around three years, with sentiment spilling over into WTI (CL) and Brent (EB) crudes. WTI closed the session up by 0.6%, and Brent observed a more modest gain of 0.3%.

While some analysts remain concerned about the outlook for oil demand, drillers look forward to deregulation and new natural gas export hubs under the incoming Donald Trump administration.

Meanwhile, Europe braces for the coldest snap this winter as the Russian gas transit through Ukraine is set to expire during a period when Trump urges the region to buy more US Liquified Natural Gas (LNG) to avoid tariffs.

Drivers of the NatGas Market Frenzy

The February natural gas futures contract soared on Monday as the National Weather Service forecasted colder weather than normally seen in the East and Midwest US, surging to as high as $4.20 per million British thermal units (Btu). Private weather forecaster BAMWX also expects a “dangerous cold” between the eighth and 12th of January and extending into the eastern half during the second week of the month, as it forecasts the polar vortex to hit the Lower 48 in the next few days.

Northwest Europe is also anticipated to face a cold snap, with temperatures in the UK, France, and Germany expected to fall below the 30-year average and the zero freezing point. Higher gas prices in Europe have pushed electricity costs up during the Christmas holidays, with the German market recording the highest increase in solar photovoltaic production at 63% and Italy marking a record single-day production. However, the end of Russian gas flows into the EU via Ukraine, along with falling inventories of natural gas reserves dropping to 74% of capacity during a cold winter, may continue to put pressure on gas prices.

A notable bullish catalyst for price action on Monday was also the LNG expansion at Cheniere Energy (LNG) Corpus Christi plant. Coupled with cargo shipments by the Plaquemines plant onboarded onto Venture Global, global demand for LNG pushed the US outlook higher. Despite the production stage sitting at 76% of project completion as of 30 November, the company announced its conclusion by the end of Q1. The LNG plant is estimated to produce more than 10 million tonnes of gas per annum. 

The combination of bullish catalysts ahead of the cold snap in the following days and weeks boosted natural gas futures. However, whether forecasts receive an upward or downward revision remains to be seen. 

Catalysts for Bullish Outlook

According to S&P Global Commodity Insights, natural gas is expected to remain bullish through 2035 due to power demand stemming from data centres. Wells Fargo (WFC) cites the electricity demand required to run AI infrastructure by 2030 as a driver for higher prices, with some analysts noting that renewables alone cannot meet the demand needs. In fact, Goldman Sachs (GS) expects natural gas to account for around 60% of the power AI requires and renewables for the remaining 40%. (Source: EuroNews)

Zooming into 2025, colder weather forecasts come at a time when Europe faces uncertainty about its own gas needs. Monday marked the last day of Russian gas flowing into Europe via Ukraine following a five-year transit deal unlikely to renew, with most routes except the TurkStream to Europe shut. Meanwhile, still-allowed Russian LNG imports to the EU hit a record high in December as the region looks for cheaper alternatives to US LNG. However, European Commissioner Ursula von der Leyen signalled earlier this year an increase in US imports to counter potential trade tariffs. 

Fast-forward to the end of December. In a post on Truth Social, Trump warned the EU of tariffs, urging the region to buy more US LNG to avoid them. The US has become the largest LNG supplier to the EU since Russia invaded Ukraine, representing around half of the bloc's imports in 2024.

Notably, a US government study estimated that gas prices could rise by up to 30% if LNG exports increased.

The Energy Information Administration (EIA) also estimated that increasing LNG exports could add 33% to natural gas prices in 2025 following record-low prices in February 2024, with demand expected to outdo supply significantly. However, while the Joe Biden administration stopped issuing export permits earlier in the year, Trump will likely lift the ban next year. The EIA still expects LNG exports to double in the following few years to 24.4 billion cubic feet per day (Bcf/d), with an additional three LNG plants under construction. However, only time will tell whether these forecasts come to fruition.

Wrap Up

Natural gas markets have heated up in response to cold temperatures and a host of geopolitical, economic and environmental factors. From the polar vortex threatening the US and Europe to growing LNG exports, the industry may stand at a pivotal moment. 

While weather forecasts have sparked a short-term price spike, the long-term outlook nurtures recent momentum. Trump’s potential deregulation and Europe's struggle for energy security continue to shape the market.

For now, one thing is clear. Natural gas is ending 2024 on a high note.