U.S. natural gas futures rose almost 2% on Tuesday on forecasts for more heat and cooling demand next week than previously expected despite an increase in output to a fresh record high.
Front-month gas futures for September delivery on the New York Mercantile Exchange rose 3.7 cents to $2.142 per million British thermal units at 9:05 a.m. EDT (1305 GMT), or minus 1.8%. Front-month gas futures for September delivery on the New York Mercantile Exchange were up 1.8 cents, or 0.9%, to $2.123 per million British thermal units (mmBtu) at 8:55 a.m. EDT (1255 GMT). That keeps the contract within a dime of its $2.070 close on Aug. 5, which was its lowest settle since May 26, 2016.
The 12-month futures strip, meanwhile, slipped to $2.29/mmBtu, its lowest since March 2016.
Analysts said futures have traded near multiyear lows since May because record production and mild spring weather allowed utilities to inject huge amounts of gas into storage, shrinking a massive inventory deficit and removing concerns about shortages this winter even though power demand and liquefied natural gas (LNG) exports are on track to hit all-time highs.
The amount of gas in inventory has remained below the five-year average since September 2017. It fell as low as 33% below that average in March 2019. But with production expected to keep growing, analysts said, stockpiles should reach a near-normal 3.7 trillion cubic feet (tcf) by the end of the summer injection season on Oct. 31.
Gas production in the Lower 48 states rose to a record 91.9 billion cubic feet per day (bcfd) on Monday, up from a low of 90.8 bcfd last week, according to data provider Refinitiv.
Output hit that all-time high even though a section of Enbridge Inc’s Texas Eastern pipe remained shut in Kentucky after an explosion on Aug. 1 that killed one person. The company said it was working to restore service on two of the three lines near the blast site but will keep flows in the area at zero through at least Aug. 16.
With the weather expected to warm next week, Refinitiv projected demand in the lower 48 U.S. states would rise from an average of 90.2 bcfd this week to 92.5 bcfd next week as more gas flows to LNG export terminals and power generators burn more of the fuel to meet rising air-conditioning use.
That is higher than Refinitiv’s forecast on Monday of 91.6 bcfd for next week.
Refinitiv projected gas flows to LNG export terminals would rise from around 4.1 bcfd now to an estimated 5.1 bcfd next week as units at Cheniere Energy Inc’s Sabine Pass in Louisiana and Corpus Christi exit outages and new units enter service at Freeport LNG’s Freeport in Texas and Kinder Morgan Inc’s Elba in Georgia.
Traders said they expect the Oak Spirit LNG tanker, which is in the Gulf of Mexico, will pick up the first cargo from the Freeport terminal over the next week or so.
In Texas, the state’s electric grid operator expects power demand on Tuesday will top the record high hit on Monday as consumers crank up their air conditioners to escape a brutal heat wave blanketing the U.S. Southeast.