U.S. natural gas futures jumped about 12% to a one-week high on Thursday on a much smaller-than-expected storage build last week, when power generators burned lots of gas to keep air conditioners humming during an extreme heat wave.
Even before the government released the storage report, traders noted prices were already up about 5% because last week’s heat wave was still affecting much of the country this week – power demand in Texas has continued to break all-time high records – and gas output has dropped over the past couple of days.
The U.S. Energy Information Administration (EIA) said U.S. utilities added 60 billion cubic feet (bcf) of gas to storage during the week ended July 1.
That was much lower than the 74 bcf that analysts forecast in a Reuters poll and compares with an increase of 25 bcf in the same week last year and a five-year (2017-2021) average increase of 60 bcf.
Last week’s increase boosted stockpiles to 2.311 trillion cubic feet (tcf), or 12.2% below the five-year average of 2.633 tcf for this time of the year.
That smaller-than-expected storage build came despite the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas, which has left more gas in the United States since it shut on June 8.
Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut.
Front-month gas futures for August delivery were up 67 cents, or 12.2%, to $6.180 per million British thermal units (mmBtu) at 10:46 a.m. EDT (1446 GMT), putting the contract on track for its highest close since June 29.
That also puts the front-month on track for its biggest daily percentage gain since early February when it jumped about 16%.
So far this year, the contract is up about 65% 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 Moscow would cut gas supplies to Europe.
Gas was trading around $55 per mmBtu in Europe and $39 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.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 95.9 bcfd so far in July from 95.1 bcfd in June. That compares with a monthly record of 96.1 bcfd in December 2021.
Over the past two days, however, output was on track to drop 2.4 bcfd to a preliminary three-week low of 94.2 bcfd on Thursday. 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 96.2 bcfd this week to 99.0 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Wednesday.
The average amount of gas flowing to U.S. LNG export plants has held at 11.2 bcfd so far in July, the same as in June. That was down from 12.5 bcfd in May and a monthly record of 12.9 bcfd in March due to the Freeport outage.
The seven big U.S. export plants can turn about 13.6 bcfd of gas into LNG.
Having that extra gas in the United States during the Freeport outage has already caused U.S. prices to drop about 40% from nearly a 14-year high above $9 per mmBtu in early June, just before the LNG plant shut.