U.S. natural gas futures rose about 3% on Wednesday on forecasts for hotter weather over the next two weeks than previously expected and a decline in output in recent days.
Extreme weather has already boosted power demand to record highs in several parts of the country, including Texas, as homes and businesses crank up their air conditioners to escape a brutal heat wave.
That price increase came despite a drop in feed gas to liquefied natural gas (LNG) export plants due to upsets at a couple facilities in Louisiana and the ongoing outage at Freeport in Texas, which leaves more fuel in the United States for utilities to refill low storage.
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 has said the facility could return around Oct. 22. Some analysts, however, expect the outage to last longer.
Front-month gas futures on the New York Mercantile Exchange (NYMEX) rose 18.1 cents, or 2.5%, to $7.445 per million British thermal units (mmBtu) at 9:43 a.m. EDT (1343 GMT).
On the technical side, the front-month was still having a tough time staying above its 50-day moving average, making that a key level of resistance for a third day in a row.
On Tuesday, open interest in NYMEX futures fell to its lowest since February 2016 as investors cut risky assets like commodities, worried the Federal Reserve will keep raising U.S. interest rates.
So far this year, the front-month was up about 100% 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 $46 per mmBtu in Europe and $37 in Asia.
After the shutdown of Nord Stream 1 for maintenance on July 11, Russian gas exports have held around 1.4 bcfd 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 an average of 3.7 bcfd in the month before Nord Stream shut and an average of 9.4 bcfd in July 2021.
The companies operating Nord Stream, led by Russian energy company Gazprom PAO <Origin Href=”QuoteRef”>GAZP.MM</Origin>, have said the pipe should return around July 21.
The European Union, however, told member states to cut gas usage by 15% until March as an emergency step after Russian President Vladimir Putin warned that supplies sent via Nord Stream could be reduced further and might even stop.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 96.1 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, output was on track to drop 2.7 bcfd from a six-month high of 97.3 bcfd on Monday to a preliminary five-week low of 94.6 bcfd on Wednesday. Preliminary data is often revised later in the day.
Refinitiv projected average U.S. gas demand including exports would slide from 100.9 bcfd this week to 100.1 bcfd next week as extreme heat starts to ease in some parts of the country. Those forecasts were similar to Refinitiv's outlook on Tuesday.
With hot weather blanketing much of the country, next-day power in New England soared to $199 per megawatt hour for Wednesday, its highest since late January.
The average amount of gas flowing to U.S. LNG export plants slid to 11.0 bcfd so far in July from 11.2 bcfd in June due to reductions at Cheniere Energy Inc’s Sabine Pass and Venture Global LNG’s Calcasieu Pass plants in Louisiana this week.