U.S. natural gas futures edged higher on Wednesday after plunging more than 4% in the prior session as forecasts for less production and slightly higher cooling demand over the next two weeks offset a decline in expected liquefied natural gas (LNG) exports.
Front-month gas futures for August delivery on the New York Mercantile Exchange were up 3.1 cents, or 1.3%, to $2.337 per million British thermal units (mmBtu) at 8:45 a.m. EDT (1245 GMT). On Tuesday, the market fell by its biggest daily percentage loss since January.
The premium of futures for November over October , a bet on winter weather forecasts, rose to about 10 cents per mmBtu, its highest since April 2011.
Meteorologists forecast the hot weather seen this week will peak over the weekend with temperatures next week expected to cool to near normal levels next week. That will reduce the amount of gas power plants need to burn next week to keep air conditioners humming compared with this week.
The weather, however, is expected to be a little warmer in the next two weeks than previously predicted and that will boost the amount of gas power generators will burn versus Tuesday’s forecasts.
That increased power consumption will be offset by a slight decline in the amount of gas flowing to the nation’s LNG export terminals due primarily to a reduction in flows to Dominion Energy Inc’s Cove Point facility in Maryland.
The amount of gas flowing to the nation’s LNG export plants was expected to slip to 5.8 billion cubic feet per day (bcfd) on Wednesday from an all-time high of 6.3 bcfd on Sunday. At Cove Point, which only has one liquefaction train, flows were expected to fall from the 0.7 bcfd seen in the past few months to about 0.4 bcfd on Wednesday, their lowest since a maintenance outage in October, according to data provider Refinitiv.
Overall, Refinitiv projected demand in the lower 48 U.S. states would slide from 91.1 bcfd this week to 90.8 bcfd next week as the weather cools.
That is lower than Refinitiv’s forecasts on Tuesday of 91.3 bcfd for this week and 91.0 bcfd for next week. But it still keeps power generators on track to burn more than 40 bcfd of gas on average this month, which would break the sector’s 39.9 bcfd monthly record set in July 2018, according to federal energy projections.
With the remnants of Tropical Storm Barry currently located over Indiana and Ohio, energy firms were returning their wells and platforms in the Gulf of Mexico to service. Barry hit the central Louisiana coast as a tropical storm on Saturday.
Gas production from the offshore Gulf of Mexico was expected to rise to 1.4 bcfd on Wednesday from a low of 1.2 bcfd on Saturday-Monday, according to Refinitiv. That compares with a high of 3.1 bcfd during the first week of July.
Despite gains in the Gulf, output in the Lower 48 states fell to an eight-week low of 87.6 bcfd on Tuesday from 88.3 bcfd on Monday due to small reductions in several states, including Pennsylvania, West Virginia, Louisiana, Oklahoma and Colorado, according to Refinitiv. That compares with an all-time daily high of 91.1 bcfd on July 5 and an average of 82.1 bcfd during this week last year.
Analysts said utilities likely added 65 billion cubic feet (bcf) of gas to inventories during the week ended July 12. That compares with an increase of 46 bcf during the same week last year and a five-year (2014-18) average increase of 63 bcf for the period.
If correct, the increase would boost stockpiles to 2.536 trillion cubic feet (tcf), 5.2% below the five-year average of 2.676 tcf for this time of year.
That would be the 18th week in a row storage increases were bigger or decreases were smaller than the five-year average, the most since November 2014 when utilities added more gas or removed less gas than usual for a record 30 consecutive weeks, according to federal energy data going back to 2010. Analysts, however, forecast hot weather through the end of July would likely boost cooling demand enough to cause builds to be smaller than normal in future weeks.
The amount of gas in storage has remained below the five-year average since September 2017. It peaked at 33% under the five-year average in March 2019. Analysts expect inventories will reach a near-normal 3.7 tcf by the end of the summer injection season on Oct 31.