U.S. natural gas futures rose about 1% to a near 14-year high on Tuesday on forecasts for hotter weather and higher demand than previously expected, a decline in output, low wind power and record power demand in Texas.
Power demand in Texas broke the June record on Monday and will continue rising until it breaks the all-time high later this week as economic growth boosts overall usage and hot weather causes homes and businesses to crank up their air conditioners.
Low wind power forces generators, including those in Texas – the state with the most wind power – to burn more gas to keep the lights on.
Front-month gas futures for July delivery rose 8.6 cents, or 0.9%, to $9.408 per million British thermal units (mmBtu) at 8:53 a.m. EDT (1253 GMT), putting the contract on track for its highest close since July 2008.
U.S. gas futures were up about 154% so far this year as much higher prices in Europe and Asia keep demand for U.S. 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 $25 per mmBtu in Europe and $23 in Asia.
In addition, traders said U.S. futures have soared in recent months due to low U.S. gas stockpiles – about 15% below normal for this time of year – and high U.S. coal prices, which make it uneconomical for electric companies to switch from gas to coal for power generation.
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.
On a daily basis, U.S. output was on track to drop 1.4 bcfd to a preliminary 93.8 bcfd on Tuesday, its lowest since late April. That would be the biggest one-day decline since early February, but preliminary data is often revised.
With hotter weather coming, Refinitiv projected average U.S. gas demand, including exports, would rise to 93.9 bcfd next week from 90.7 bcfd this week. Those forecasts were much higher than Refinitiv’s outlook on Monday.
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 boosted pipeline exports to Europe to 6.9 bcfd on Monday from 6.8 bcfd on Sunday 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.