US natural gas futures fall 5.5% on Friday after pipeline leak triggered 9% surge

Market expects supply disruption to be short-lived

U.S. natural gas futures turned lower on Friday, giving back a portion of the sharp gains recorded the previous session. The volatility followed a pipeline leak at TC Energy's (TRP.US) Columbia Gas Transmission system in West Virginia, which reduced transport capacity and temporarily affected up to 1.5% of natural gas supply across the lower 48 states.

On Thursday, prices surged 9% in response to the disruption. However, expectations that the outage would be brief helped ease supply concerns, leading to a pullback on Friday.

As of Friday, near-month natural gas futures for October delivery on the New York Mercantile Exchange fell 5.5% to settle at $3.115 per million British thermal units (MMBtu). The contract had closed at its highest level since June 25 on Thursday.

Pipeline Leak Triggers Force Majeure, Cuts Daily Capacity by 1.8 Billion Cubic Feet

The sharp price swings were triggered by a pipeline incident in West Virginia. A leak on the Columbia Gas Transmission system prompted a force majeure declaration and led to reduced capacity on the Mountaineer Xpress pipeline. As a key regional natural gas transport route, the pipeline's firm transportation service capacity was reduced by 1.8 billion cubic feet per day, driving Thursday's rally.

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

However, according to Ritterbusch & Associates, the pipeline disruption is unlikely to last long.

The firm also noted that Thursday's sharp price reaction may have been amplified by a large buildup of speculative short positions in the market. With U.S. natural gas inventories maintaining a comfortable buffer throughout the summer, some traders had grown less vigilant about supply risks. When the sudden outage occurred, short covering likely magnified the price increase.

This suggests that Thursday's 9% gain may not fully reflect actual supply losses, but was also driven by market positioning adjustments.

European Gas Set to Fall Over 5% This Week, But Storage Only at 70%

Across the Atlantic, European natural gas markets have shown relative weakness. With diplomatic efforts to end the conflict in the Middle East making progress and seasonal temperatures remaining mild—delaying any significant heating demand—European gas prices are expected to decline more than 5% this week.

However, Europe's supply base remains fragile. EU natural gas storage facilities are only about 70% full, meaning any new supply disruption could still trigger a rapid price response.

Analysts at ANZ Bank noted that liquefied natural gas (LNG) has less transport flexibility compared to crude oil, as LNG relies on specialized vessels and is more exposed to security risks. Therefore, with geopolitical uncertainties persisting, potential risks to European gas supply remain significant.

In addition, maintenance work at Norwegian gas facilities has reduced pipeline flows to Europe in recent days, further tightening the European market.

Outlook

Overall, U.S. and European natural gas markets are currently driven by different short-term factors. In the U.S., prices have retreated after the pipeline-induced supply shock, as the disruption is expected to be short-lived. In Europe, prices are weakening due to mild weather and easing geopolitical tensions, but low storage levels, reduced Norwegian supply, and LNG transport constraints mean the market remains highly sensitive to any new supply disruptions.