U.S. natural gas futures rose about 6% to a two-week high on Wednesday on a drop in daily gas output over the past few days and forecasts for hotter weather and more demand over the next two weeks than previously expected.
The heat has already boosted power demand to record levels in several parts of the country, including in Texas, prompting generators to burn more gas to produce electricity to keep air conditioners humming.
Traders noted prices were up despite the ongoing outage at Freeport LNG’s liquefied natural gas (LNG) export plant in Texas, which has left more gas in the United States for utilities to refill low stockpiles for the winter.
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. Freeport LNG has said the facility could return by October. Some analysts, however, think the plant could remain shut for longer.
After weeks of rising volatility, front-month gas futures for August delivery on the New York Mercantile Exchange (NYMEX) were up 36.4 cents, or 5.9%, to $6.527 per million British thermal units (mmBtu) at 8:52 a.m. EDT (1252 GMT), putting the contract on track for its highest close since June 28.
Gas market close-to-close volatility over the past 30 days rose to its highest since March. Volatility hit a record high in February.
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 as investors cut back on risky assets like commodities.
So far this year, the front-month is up about 72% 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 $54 per mmBtu in Europe, which is a four-month high, and $39 in Asia.
Russian gas exports 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 – dropped to 1.3 bcfd on Tuesday from 1.6 bcfd on Monday due to the shutdown of Nord Stream for maintenance on July 11.
That compares with around 3.7 bcfd over the past month, 6.5 bcfd in early June and an average of 9.4 bcfd in July 2021.
The group operating Nord Stream said the pipe should return around July 21. Analysts, however, said the outage could last longer.
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 rose to 96.0 bcfd so far in July from 95.3 bcfd in June. That compares with a monthly record high of 96.1 bcfd in December 2021.
On a daily basis, however, U.S. output was on track to drop by 2.4 bcfd over the past three days to a preliminary 11-week low of 94.1 bcfd on Wednesday. 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 98.8 bcfd this week to 99.5 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Tuesday.
The average amount of gas flowing to U.S. LNG export plants slid to 11.1 bcfd so far in July from 11.2 bcfd 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 13.8 bcfd of gas into LNG.