US natural gas prices ride a "roller coaster"! Pipeline leak triggers a 9% surge before falling back; market expects supply disruption to be brief

According to Zhihui Finance APP, U.S. natural gas futures turned lower on Friday, paring some of the significant gains from the previous trading day. Previously, a leak on the Columbia Gas Transmission pipeline operated by TC Energy (TRP.US) in West Virginia reduced transport capacity, once affecting as much as 1.5% of natural gas supply in the U.S. Lower 48 states, fueling a sharp price surge on Thursday. However, as the market expects the disruption to be relatively short-lived, supply concerns have eased.

As of Friday, front-month natural gas futures for October delivery on the New York Mercantile Exchange fell by 5.5% to $3.115 per million British thermal units. The contract had jumped 9% on Thursday, marking the highest close since June 25.

Pipeline leak triggers force majeure, daily capacity reduced by 1.8 billion cubic feet

The immediate catalyst for the sharp volatility in natural gas prices was the pipeline incident in West Virginia. The leak on the Columbia Gas Transmission pipeline triggered force majeure and led to a subsequent capacity reduction on the Mountaineer Xpress pipeline. As a key local transportation corridor, fixed transmission service capacity on this pipeline dropped by 1.8 billion cubic feet per day, causing U.S. natural gas futures to spike rapidly on Thursday.

This disruption occurred at a time when U.S. natural gas supply was already tightening. In recent weeks, as the traditional autumn demand lull approaches, Appalachian gas producers had begun cutting output, and the pipeline disruption further tightened short-term supply.

However, Ritterbusch & Associates stated that, for now, the pipeline outage may not last very long.

The firm also believes that the sharp price reaction to Thursday's pipeline incident may also be related to the large accumulation of speculative short positions in the market. With U.S. natural gas stocks remaining well-buffered this summer, some traders had become less wary of supply risks. When the sudden supply disruption occurred, short covering may have amplified the price move.

This also suggests that the sharp 9% gain on Thursday may not fully reflect actual supply loss, but was also driven by market position adjustments.

European natural gas may fall over 5% this week, but inventories at just about 70%

Meanwhile, on the other side of the Atlantic, Europe's natural gas market remains relatively soft. With hopes building for diplomatic efforts to end the Middle East war, seasonally mild temperatures, and delayed heating demand, European natural gas prices are expected to fall by more than 5% this week.

However, the supply base of the European natural gas market remains relatively fragile. Currently, EU gas storage facilities are filled to only about 70%, meaning any new supply disruption could see prices react quickly.

Analysts at ANZ Bank point out that, compared to crude oil, liquefied natural gas (LNG) is less flexible in transportation, as its shipping depends on specialized vessels and is more easily affected by security risks. Therefore, amid geopolitical uncertainties, potential risks to European gas supply should not be underestimated.

In addition, due to maintenance at gas facilities, Norway’s gas deliveries to Europe through pipelines have recently declined, further tightening the European natural gas market.

Overall, U.S. and European natural gas markets are currently being driven by different short-term factors. The U.S. market, after a supply shock triggered by a pipeline incident, is seeing prices retreat as the interruption may end quickly; Europe, on the other hand, is weakening owing to mild weather and easing geopolitical tensions, but the relatively low inventory levels, declining Norwegian supply and LNG transport constraints mean the market remains highly sensitive to any new supply disruption.