The shares of Santos Ltd (ASX: STO) and Liquefied Natural Gas Ltd (ASX: LNG) could come under pressure in the coming weeks as the expected surge in demand for natural gas in the United States fades.
According to the Wall Street Journal, a milder U.S. winter than previously forecast sent natural gas futures crashing 10.7% to $3.33 per million British thermal units on the New York Mercantile Exchange overnight.
This was the single largest decline in almost three years and caused the shares of natural gas producers around the world to plunge.
At the end of the year natural gas prices rallied to two-year highs following forecasts for extreme cold weather throughout the majority of the United States in January. Traders expected the surge in demand to heat homes would eat into below-average supplies quickly and cause natural gas or LNG prices to spike higher still.
But with unseasonably mild winter weather now expected, it appears unlikely that demand will be anywhere near the levels previously expected during the northern hemisphere's winter.
It is worth noting though that supplies are still lower than average, so a quick change in weather conditions could reverse the natural gas price falls. Natural gas prices are notoriously volatile and unpredictable, which means the shares of price taking gas producers can be equally volatile.