U.S. natural gas futures jumped about 5% on Wednesday, erasing most of the prior session’s losses, as preliminary data showed a drop in output and power demand in Texas hit monthly record highs.
That price increase came despite forecasts for lower gas demand over the next two weeks than previously expected.
Power use in Texas reached the highest level on record for the month of May on Tuesday and will likely break the June record on Wednesday as economic growth boosts overall usage and hot weather causes homes and businesses to crank up their air conditioners.
After dropping about 7% on Tuesday, front-month gas futures for July delivery rose 40.1 cents, or 4.9%, to $8.546 per million British thermal units (mmBtu) at 9:56 a.m. EDT (1356 GMT).
That put U.S. gas futures up about 129% so far this year as much higher prices in Europe and Asia keep demand for U.S. liquefied natural gas (LNG) exports strong, especially since Russia’s Feb. 24 invasion of Ukraine stoked fears that Moscow might cut gas supplies to Europe.
Gas was trading around $28 per mmBtu in Europe and $24 in Asia.
Even with much bigger supply worries in Europe, traders noted U.S. futures gained about 14% over the past month, while European prices were down about 9% during that time as Russia keeps sending gas supplies by pipeline and LNG vessels keep delivering lots of cargoes.
U.S. futures lag far behind global prices because the United States is the world’s top producer with all the gas it needs for domestic use, while capacity constraints inhibit additional LNG exports.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 95.1 billion cubic feet per day (bcfd) in May from 94.5 bcfd in April. That compares with a monthly record of 96.1 bcfd in December 2021.
On a daily basis, however, output dropped by 2.8 bcfd to a preliminary 92.9 bcfd on Wednesday. That would be the biggest one-day drop since early February, but traders noted first of the month declines are often revised higher.
Refinitiv projected average U.S. gas demand, including exports, would rise from 84.8 bcfd this week to 86.4 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Tuesday.
The average amount of gas flowing to U.S. LNG export plants rose to 12.5 bcfd in May from 12.2 bcfd in April. That compares with a monthly record of 12.9 bcfd in March. The United States can turn about 13.6 bcfd of gas into LNG.
The United States, which will not be able to produce much more LNG anytime soon, has worked with allies to divert exports from elsewhere to Europe to help European Union countries and others break dependence on Russian gas after Russia’s invasion of Ukraine.
Russia cut pipeline exports to Europe to 6.8 bcfd on Tuesday from 7.5 bcfd on Monday on the three mainlines into Germany: North Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route. That compares with an average of 11.6 bcfd in June 2021.
Gas stockpiles in Northwest Europe – Belgium, France, Germany and the Netherlands – were about 9% below the five-year (2017-2021) average for this time of year, down from 39% below the five-year norm in mid-March, according to Refinitiv. Storage was currently about 43% of full capacity.
That is healthier than U.S. inventories, which were around 15% below their five-year norm.