U.S. natural gas futures climbed about 3% to a fresh 14-year high on Wednesday on a drop in daily output, hotter than normal weather on the West Coast and in Texas, and near record global prices.
That U.S. price increase came despite forecasts for less hot weather and lower air conditioning demand across much of the country over the next two weeks than previously expected.
Also preventing U.S. prices from spiking higher, traders noted 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 stockpiles for next winter.
Freeport LNG, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it was shut on June 8. Freeport expects the plant to return to at least partial service in early October.
Front-month gas futures rose 28 cents, or 3.0%, to $9.609 per million British thermal units (mmBtu) at 8:43 a.m. EDT (1243 GMT), putting the contract on track for its highest close since July 2008.
That kept the front-month in technically overbought territory with a relative strength index (RSI) above 70 for a second day in a row.
The jump in gas prices coupled with recent declines in crude futures have cut oil’s premium over gas to its lowest since April 2020 when crude briefly turned negative. Over the last several years that premium has prompted U.S. energy firms to focus most of their drilling activity on finding more oil instead of gas because crude was by far the more valuable commodity.
The oil-to-gas ratio, or level at which oil trades compared with gas, dropped to 9-to-1 on Wednesday. So far in 2022, crude has traded about 17 times over gas. That compares with crude’s average premium over gas of 19 times in 2021 and a five-year average (2017-2021) of 20 times. On an energy equivalent basis, oil should trade only six times over gas.
In the spot market, power prices for Wednesday in Southern California and in Washington State climbed to their highest since September 2021 as homes and businesses cranked up their air conditioners to escape a heat wave.
It’s also hot in Texas where power prices at the ERCOT North hub, which includes Dallas, jumped to their highest since June 2021.
So far this year, the gas front-month was up about 157% as higher prices in Europe and Asia keep demand for U.S. LNG exports strong. Global gas prices have soared this year following supply disruptions linked to Russia’s invasion of Ukraine on Feb. 24.
Gas was trading near a record $68 per mmBtu in Europe and at an all-time high of $57 in Asia.
Russian gas exports via 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 – averaged 2.5 bcfd so far in August, down from 2.8 bcfd in July and 10.4 bcfd in August 2021.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 97.3 bcfd so far in August from a record 96.7 bcfd in July.
On a daily basis, however, output was on track to drop from a record 98.3 bcfd on Aug. 8 to a preliminary 15-week low of 94.4 bcfd on Wednesday. Preliminary data is often revised later in the day.
With warmer weather expected, Refinitiv projected average U.S. gas demand, including exports, would rise from 95.0 bcfd this week to 96.3 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Tuesday.