Natural gas futures and related exchange traded funds surged Tuesday after a pipeline explosion in Kentucky that could cause prolonged supply disruptions and as cold weather lingers in the East.

The United States Natural Gas Fund (NYSEArca: UNG) was among the best performing non-leveraged ETFs of Tuesday, rising 5.2%, while the Nymex natural gas futures were 4.8% higher to $2.09 per million British thermal units.

A Texas Eastern Transmission Co’s pipeline exploded in Fleming County, Kentucky, and Tetco declared a force majeure late Monday advising shippers of an “unplanned outage” in this area and an indefinite restoration timeline, Natural Gas Intelligence reports.

“This is also just upstream of Tetco’s last explosion in August 2019 near Danville, KY, on Line 15,” Genscape analyst Josh Garcia said in a note. “As a result, north to south capacity through Owingsville will be reduced from 1.33 Bcf/d to zero beginning on gas day May 5 and will last for the immediate future.”

“Flows through this compressor were at or above capacity for the majority of the month prior to the explosion… This outage will add bearish pressure” on prices in Tetco’s M-2 zone “as one of its main export lines is severely constrained, which will force reroutes in the region and possibly cause shut-ins.”

Natural gas prices also found some forward momentum on cool weather moving across the northern U.S., along with areas of heat in the Southwest. Bespoke Weather Services noted that “it is unclear if this move is really all that bullish, but the cold is impressive for this time of the year.”

Looking further out, NatGasWeather argued that natural gas markets will watch for hotter trends instead of cooler trends as it would suggest a hotter summer to come, which would fuel cooling electricity demand.

“…For today’s trade, we look to see if the evening spike due to the Kentucky pipeline explosion holds. Clearly, decreasing natural gas production has been bullish, but Covid-19 demand destruction” and canceled liquefied natural gas export cargoes have been bearish, according to NatGasWeather. “We view weather patterns as bullish-biased through mid-next week, then neutral to bearish after.”

For more information on the natgas market, visit our natural gas category.

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