U.S. natural gas futures rose about 3% on Tuesday from a near three-month low in the prior session on a technical bounce, forecasts for higher gas demand over the next two weeks than previously expected, and renewed concerns about a possible rail strike.
A rail strike could boost demand for gas by threatening coal supplies to power plants.
A union representing employees who build and maintain tracks said its members rejected the tentative contract deal with a committee representing major U.S. freight railroads.
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 usually burn more gas to produce power. Gas already provides about 37% of U.S. electricity.
That gas price increase came despite near record output and forecasts for continued milder-than-normal weather that will allow utilities to keep injecting more gas into storage than usual in coming weeks.
Recent drops in demand from storm-related power outages and reduced liquefied natural gas (LNG) exports have also weighed on gas prices.
Hurricane Ian left more than 4 million homes and businesses in Florida and 1.1 million in North and South Carolina without power after hitting Florida in late September. It took utilities in Florida more than a week to restore power to some customers in the hardest hit areas.
Gas demand was also reduced by outages at LNG export plants, including Berkshire Hathaway Energy’s 0.8-billion-cubic-feet-per-day (bcfd) Cove Point in Maryland for about three weeks of planned work starting Oct. 1 and Freeport LNG’s 2.0-bcfd plant in Texas for unplanned work after an explosion 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 16.1 cents, or 2.5%, to settle at $6.596 per million British thermal units (mmBtu) on the New York Mercantile Exchange (NYMEX). On Monday, the contract closed at $6.435, its lowest since July 12.
Analysts at energy consulting firm Gelber & Associates said Monday’s close below $6.466 per mmBtu was “significant because it was the highest price point for NYMEX front-month gas futures for last winter.”
“Should prices see a second close below this price level, it opens the door to a much deeper sell-off,” Gelber said, noting prices rose on Tuesday in part due to “market bulls attempt to fight a second close below this critical technical zone.”
Despite recent declines, U.S. futures are still up about 77% so far this year as soaring global gas prices feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.
Gas was trading at $45 per mmBtu in Europe and $35 in Asia. Prices in Europe fell to a three-month low of $44.25 on Oct. 7 as strong LNG imports boosted the amount of gas in storage in the northwest to over 90% of capacity. That compares with an all-time high of $90.91 on Aug. 25.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states have risen to 100.1 bcfd so far in October, up from a monthly record of 99.4 bcfd in September.
With cooler weather coming, Refinitiv projected average U.S. gas demand, including exports, would rise from 92.6 bcfd this week to 96.1 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Monday.
The average amount of gas flowing to U.S. LNG export plants has fallen to 10.8 bcfd so far in October from 11.5 bcfd in September. 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.