U.S. natural gas futures rose about 3% to a fresh three-week high on Thursday 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.
That heat has already boosted power demand to record levels in several parts of the country as homes and businesses crank up their air conditioners, including Texas where conservation efforts saved the state’s grid operator from taking emergency steps, like rotating blackouts to avoid widespread outages.
The price increase came ahead of a federal storage report expected to show a slightly bigger-than-normal storage build last week due to the ongoing outage at Freeport LNG’s liquefied natural gas export plant in Texas that left more gas in the United States for utilities to refill low stockpiles.
That storage build came despite extreme heat last week that forced generators to burn lots of gas to keep air conditioners humming.
Analysts forecast U.S. utilities added 58 billion cubic feet (bcf) of gas to storage during the week ended July 8. That compares with an increase of 49 bcf in the same week last year and a five-year (2017-2021) average increase of 55 bcf.
If correct, last week’s increase would boost stockpiles to 2.369 trillion cubic feet (tcf), or 11.9% below the five-year average of 2.688 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. Freeport LNG has said the facility could return by October. Some analysts, however, think the plant could remain shut for longer.
Front-month gas futures rose 18.1 cents, or 2.7%, to $6.870 per million British thermal units (mmBtu) at 8:15 a.m. EDT (1215 GMT), putting the contract on track for its highest close since June 22 for a second day in a row.
So far this year, the front-month was up about 83% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Russia’s invasion of Ukraine stoked fears Moscow would cut gas supplies to Europe.
Gas was trading around $52 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 – held around 1.4 bcfd on Wednesday, the same as Tuesday.
That is down from an average of 3.7 bcfd over the past month due to a maintenance shutdown of Nord Stream on July 11 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 95.9 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 2.9 bcfd this week to a preliminary 11-week low of 93.7 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 99.1 bcfd this week to 99.9 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Wednesday.