Natural gas markets in Europe and the US are experiencing significant volatility driven by freezing temperatures, supply disruptions, and surging demand. In Europe, halted Russian gas flows and inventory depletion pushed prices to their highest levels since 2023. Meanwhile, in the US, colder-than-usual weather forecasts and increased LNG export activity kept gas prices around the highest level seen this year.
Europe’s Gas Struggles Without Russian Route
European natural gas futures rose to €51 per megawatt-hour last week, the highest level since October 2023, before easing slightly to €50. This surge reflects growing concerns about the region’s ability to navigate freezing temperatures without a key supply route. Russian gas flows via Ukraine ceased on New Year’s Day after a transit deal expired, leaving no replacement. The situation has heightened fears of faster-than-expected storage withdrawals, as inventories are already depleting at the fastest rate since 2021. Sub-zero temperatures across parts of Europe could further drive up heating demand.
While Europe has sufficient gas reserves for this winter, refilling them next season presents significant challenges. The region’s increased reliance on liquefied natural gas (LNG), particularly for landlocked nations, is likely to elevate costs. Compounding this issue, Asia’s summer demand for LNG is expected to intensify, adding pressure to global supply chains.
US Natural Gas Market Reacts to Cold Weather
In the US, natural gas futures climbed to $3.95/MMBtu, driven by forecasts of colder-than-usual weather and rising heating demand, before settling back to $3.35, which remains relatively high compared to this year’s lows of around $1.50. Meteorologists predict temperatures will shift from near-normal to below-average levels, boosting demand for residential and commercial heating. Additionally, gas flows to the country’s eight major LNG export plants have been increasing, as export activity intensifies following the cessation of Russia’s pipeline exports to Europe via Ukraine.
Despite this uptick, 2024 marked the first annual decline in LNG feed gas flows since the US began exporting LNG in 2016. Nevertheless, rising export demand and domestic heating requirements are expected to support natural gas prices in the short term, as the market adjusts to shifting global dynamics.
Investing in Natural Gas Through ETFs
With European Natural Gas gaining 1.70% over the week, notable ETFs such as the WisdomTree Natural Gas (LON:NGAS) delivered a WTD return of +1.42%, reflecting recent market momentum.