U.S. natural gas futures edged up about 5% to a near two-week high on Wednesday on forecasts for higher demand over the next two weeks and worries a possible railroad strike could threaten coal supplies to power plants.
A rail strike could force generators to burn more gas to produce electricity. Coal fuels about 20% of U.S. power generation. About two-thirds of the nation’s coal-fired power plants receive their coal by rail.
When coal or any other fuel is not available for power generation, energy firms burn more gas to produce power.
The White House made contingency plans seeking to ensure deliveries of critical goods in the event of a shutdown of the U.S. rail system while again pressing railroads and unions to reach a deal to avoid a work stoppage affecting freight and passenger service.
Gas prices rose even though output was on track to reach a monthly record in September and as the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas leaves more gas in the United States for utilities to inject into stockpiles for next 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 expects the facility to return to at least partial service in early to mid-November.
Front-month gas futures rose 9.7 cents, or 1.2%, to $8.381 per million British thermal units (mmBtu) at 8:01 a.m. EDT (1201 GMT), putting the contract on track for its highest close since Sept. 2 for a third day in a row.
That put the contract on track for a fifth straight day of gains for the first time since May.
So far this year, gas futures were up about 124% as higher prices in Europe and Asia keep demand for U.S. LNG exports strong. Global gas prices have soared due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.
Gas was trading around $61 per mmBtu in Europe and $53 in Asia. That was a 9% jump for European prices.
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 – have averaged just 1.4 bcfd so far in September, down from 2.5 bcfd in August and 10.8 bcfd in September 2021.
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U.S. gas futures lag far behind global prices because the United States is the world’s top producer with all the fuel it needs for domestic use, while capacity constraints and the Freeport outage prevents the country from exporting more LNG.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states have risen to 99.1 bcfd so far in September from a record 98.0 bcfd in August.
With the coming of cooler autumn weather, Refinitiv projected average U.S. gas demand, including exports, would slip from 93.9 bcfd this week to 93.7 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 has risen to 11.2 bcfd so far in September from 11.0 bcfd in August. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.
The reduction in exports from Freeport is a problem for Europe, where most U.S. LNG has gone this year as countries there wean themselves off Russian energy.
Gas stockpiles in northwest Europe – Belgium, France, Germany and the Netherlands – were currently about 5% above their five-year (2017-2021) average for this time of year, according to Refinitiv. Storage was currently around 86% of capacity.
That is much healthier than U.S. gas inventories, which were still about 12% below their five-year norm.