U.S. natural gas futures eased about 1% on Thursday on forecasts for less hot weather through mid-August than previously expected and an increase in output to near-record highs.
That small decline came despite a smaller-than-expected storage build last week when power generators burned lots of gas to keep air conditioners humming and forecasts for more gas demand next week than previously expected.
Gas-fired power plants have provided over 40% of the United States' power this month, according to federal energy data, even though gas prices were up about 58% so far in July in part because coal prices were at record highs. That makes it uneconomic for some generators to use their coal-fired plants.
U.S. power output hit a preliminary record high in the week to July 23, according to data from Refinitiv and the Edison Electric Institute (EEI), an industry group.
The U.S. Energy Information Administration (EIA) said utilities added just 15 billion cubic feet (bcf) of gas to storage during the week ended July 22.
That was below the 22-bcf build analysts had forecast in a Reuters poll and compared with an increase of 38 bcf in the same week last year and a five-year (2017-2021) average increase of 32 bcf.
That small 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 for utilities to inject into low stockpiles.
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 estimated the facility will return to partial service in October. Some analysts say the outage could last longer.
On its first day as the front-month, gas futures for September delivery fell 11.3 cents, or 1.3%, to $8.441 per million British thermal units (mmBtu) at 10:41 a.m. EDT (1441 GMT).
On Tuesday, when the August contract was still the front-month, the contract soared to an intraday 14-year high of $9.752 per mmBtu.
So far this year, the front-month was up about 128% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Europe started reducing the amount of gas it imports from Russia following Moscow’s invasion of Ukraine on Feb. 24.
Gas was trading around $60 per mmBtu in Europe.
The United States became the world's top LNG exporter during the first half of 2022. But no matter how high global gas prices rise, the United States cannot export any more LNG due to capacity constraints.
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 – fell to 2.6 bcfd on Thursday from around 3.7 bcfd since Nord Stream exited a maintenance outage on July 21.
That decline was due to additional work on the Nord Stream pipe.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states had risen to 96.2 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.
Refinitiv projected average U.S. gas demand including exports would slide from 99.3 bcfd this week to 97.5 bcfd next week as extreme heat starts to ease in some parts of the country. The forecast for next week was higher than Refinitiv's outlook on Wednesday.