U.S. natural gas futures climbed about 1% on Wednesday on a drop in daily output and forecasts for hotter weather and more air conditioning demand next week than previously expected.
Front-month gas futures for August delivery on the New York Mercantile Exchange (NYMEX) rose 7.4 cents, or 1.3%, to $5.597 per million British thermal units (mmBtu) at 9:05 a.m. EDT (1305 GMT).
With the U.S. Federal Reserve expected to keep raising interest rates, open interest in NYMEX futures fell on Tuesday to its lowest since July 2016 for a third day in a row as investors cut back on risky assets like commodities.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 96.0 billion cubic feet per day (bcfd) so far in July, from 95.1 bcfd in June. That compares with a monthly record of 96.1 bcfd in December 2021.
On a daily basis, however, U.S. output was on track to drop 1.8 bcfd on Wednesday to a preliminary 94.7 bcfd. That would be the biggest one-day drop since early February, but preliminary data is often revised later in the day.
With hotter weather coming, Refinitiv projected average U.S. gas demand including exports would rise from 95.8 bcfd this week to 99.2 bcfd next week. The forecast for next week was higher than Refinitiv’s outlook on Tuesday.
Since the start of the year, the U.S. front-month was up about 52% as much higher prices in Europe and Asia fed strong demand for U.S. liquefied natural gas (LNG) exports. That is especially true since Russia’s Feb. 24 invasion of Ukraine stoked fears Moscow would cut gas supplies to Europe.
Gas was trading around $49 per mmBtu in Europe and $40 in Asia.
Since mid-June, Russia has exported around 3.7 bcfd of gas on the three main lines into Germany – Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route.
That is down from around 6.5 bcfd in early June and an average of 9.4 bcfd in July 2021.
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 limit LNG exports.
The average amount of gas flowing to U.S. LNG export plants dropped to 11.2 bcfd so far in July, the same as June, due to the shutdown of the Freeport LNG plant in Texas on June 8.
That compares with 12.5 bcfd in May and a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.6 bcfd of gas into LNG.
Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 bcfd of gas before it shut. So long as Freeport remains shut, that gas will remain in the United States and allow utilities to boost the country’s low stockpiles ahead of next winter.
Having that extra gas has already caused U.S. prices to drop more than 40% from a near 14-year high over $9 per mmBtu in early June just before the Freeport outage.
That is a problem for Europe where most U.S. LNG has gone as countries there wean themselves off Russian energy since Moscow’s invasion of Ukraine.
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 55% of full capacity.
That is healthier than U.S. inventories, which were around 13% below their five-year norm.