Due to the polar vortex sweeping through the USA, the price of Henry Hub Natural Gas has skyrocketed, bringing bad news to Europe, which has just reduced its dependence on Russian gas.

Severe cold weather drives up Henry Hub Natural Gas prices in the USA.

On January 3rd, according to a report by the Financial Times in the United Kingdom, with severe cold weather approaching, the northern USA may be facing the coldest January in over a decade, leading to a surge in natural gas prices. Henry Hub Natural Gas prices in the USA have risen 4% over the past week and increased 14% within a month. This Monday, the benchmark Henry Hub Natural Gas Futures contract in the USA briefly rose to a high of $4.20 per million British thermal units.

In recent years, winter storms have been the most severe cause of natural gas supply disruptions. The deadly winter storm 'Uri' in 2021 and 'Elliott' in 2022 previously caused monthly average natural gas output to drop between 3 billion to 7 billion cubic feet. This time, the National Weather Service in the USA has warned that the eastern and central regions will experience a polar vortex, expected to bring 'the coldest air and dangerous wind chills of the season so far.'

Phil Flynn, an Analyst with Price Futures Group, stated:

"The market has been fairly complacent due to soaring US production and inventories above normal levels. But at the same time, the market may have to confront winter challenges not seen in years. If the weather forecast proves accurate, it could disrupt supply and lead to an increase in natural gas prices by a dollar or more."

Data from the US Census shows that about 47% of American households use natural gas for heating, while 40% use Electrical Utilities. According to the US Energy Information Administration's forecast, natural gas prices in the Midwest are expected to rise by 11% this year, and electricity prices are projected to climb by 6%.

The suspension of natural gas supplies from Russia and Ukraine to Europe will have an impact.

At the same time, Russia officially halted the transit of natural gas through Ukraine to Europe on New Year's Day, marking the end of the era of Moscow's dominance in the European Energy market. Gazprom stated that it stopped supplying gas at 05:00 GMT on January 1 after Ukraine refused to renew the transit agreement.

Ukrainian natural gas accounts for 5% of the EU's total natural gas imports, which also means that Ukraine will lose up to 1 billion dollars annually in transit fees, while Gazprom will lose nearly 5 billion dollars in gas sales.

However, due to Europe successfully finding alternative supplies, natural gas prices were not significantly affected. European natural gas futures prices once rose to the highest level since October 2023 at 51 euros per megawatt hour, before falling back to 50 euros.

However, as inventory is currently being consumed at the fastest rate since 2021, sub-zero temperatures in some areas of Europe may drive up heating demand, and the increase in natural gas prices may intensify in the coming weeks.

US LNG exports are expected to grow significantly, bringing joy to the USA while Europe faces challenges.

Analysts believe that the USA is likely to become the biggest winner in this energy game, with Norway and the USA replacing Russia as the largest natural gas suppliers to Europe. In 2023, the USA supplied 56.2 billion cubic meters of natural gas, accounting for 19.4% of total imports.

It is worth noting that the USA has been the largest supplier of liquefied natural gas (LNG) to Europe for the third consecutive year. Previous articles from Wall Street Insight have also mentioned that since the Russia-Ukraine conflict, US LNG exports to Europe have surged. The supply increased rapidly from 2.4 billion cubic feet per day in 2021 (accounting for 27% of Europe's total LNG imports) to 7.1 billion cubic feet per day in 2023 (accounting for 48%).

Due to the reduced supply of Russian Henry Hub Natural Gas to Europe, US LNG exports to the region are expected to surge again. Morgan Stanley predicts that with the surge in LNG exports and rising Electrical Utilities demand, the US Energy market will enter a new phase of demand growth.

As Europe has transitioned from complete reliance on cheap Russian Henry Hub Natural Gas to full dependence on expensive US LNG, the news of the "Polar Vortex" is undoubtedly a huge blow to Europe.

Bloomberg Energy Analyst Stephen Stapczynski has warned:

"Cheap Russian Henry Hub Natural Gas has been a pillar for some European economies for half a century. This era has now come to an end. Europe will face higher and more persistent gas prices."