U.S. natural gas futures jumped about 7% to a 13-year high on Monday on forecasts for hotter weather and higher demand than previously expected, a decline in output, rising liquefied natural gas (LNG) exports and record power demand in Texas.
Power demand in Texas is set to break the all-time record this week, far ahead of the hottest days of summer, testing the resilience of the state’s power grid after issues earlier this year and last year’s days-long blackout during a deep freeze.
Front-month gas futures for July delivery rose 63.3 cents, or 7.4%, to $9.156 per million British thermal units (mmBtu) at 10:08 a.m. EDT (1408 GMT), putting the contract on track for its highest close since August 2008.
Despite the jump in prices this week, speculators last week cut their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges to their lowest since April 2020, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
U.S. gas futures were up about 142% 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 $26 per mmBtu in Europe and $24 in Asia.
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 fell to 94.7 billion cubic feet per day (bcfd) so far in June from 95.1 bcfd in May. That compares with a monthly record of 96.1 bcfd in December 2021.
With the coming of hotter summer weather, Refinitiv projected that average U.S. gas demand, including exports, would rise from 87.1 bcfd this week to 90.0 bcfd next week to keep more air conditioners humming. The forecasts for this week was higher than Refinitiv’s outlook on Friday.
The average amount of gas flowing to U.S. LNG export plants rose to 12.8 bcfd so far in June from 12.5 bcfd in May. 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.
Russia kept pipeline exports to Europe at around 6.8 bcfd on Sunday and Saturday 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, and down from 39% below the five-year norm in mid-March, according to Refinitiv. Storage was currently about 46% of full capacity.
That is healthier than U.S. inventories, which were around 15% below their five-year norm.