U.S. natural gas futures edged up about 1% to a fresh 13-year high on Wednesday on forecasts for hotter weather and higher demand next week 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 Tuesday and will keep rising this week until it tops the all-time high as economic growth boosts 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 7.7 cents, or 0.8%, to $9.370 per million British thermal units (mmBtu) at 8:55 a.m. EDT (1255 GMT), putting the contract on track for its highest close since August 2008 for a second time this week.
U.S. gas futures were up about 150% 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.
Traders said U.S. futures also 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 94.8 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 hotter weather coming, Refinitiv projected average U.S. gas demand, including exports, would from rise from 90.8 bcfd this week to 94.9 bcfd next week. The forecast for next week was higher than Refinitiv’s outlook on Tuesday.
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 cut pipeline exports to Europe to 6.8 bcfd on Tuesday from 6.9 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 8% 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 47% of full capacity.
That is much healthier than U.S. inventories, which were around 15% below their five-year norm