U.S. natural gas futures rose about 4% on Thursday as daily output fell over the past couple of days and on forecasts for higher demand this week than previously expected.
The price gain came ahead of a federal report expected to show utilities added more gas to storage last week than usual despite hotter than normal weather as the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas leaves more gas in the United States.
Analysts forecast U.S. utilities added 74 billion cubic feet (bcf) of gas to storage during the week ended July 1. That compares with an increase of 25 bcf in the same week last year and a five-year (2017-2021) average increase of 60 bcf.
If correct, last week’s increase would boost stockpiles to 2.325 trillion cubic feet (tcf), or 11.7% below the five-year average of 2.633 tcf for this time of the year.
Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8.
Front-month gas futures for August delivery were up 21.7 cents, or 3.9%, at $5.727 per million British thermal units (mmBtu) at 8:43 a.m. EDT (1243 GMT).
That puts the U.S. front-month up about 53% 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 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.
Power demand in Texas was expected to keep breaking records this week and next as a heatwave lingers over the state.
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 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 a near 14-year high above $9 per mmBtu in early June, just before the LNG plant shut.