U.S. natural gas futures climbed to their highest level in more than three months on Monday, with demand for LNG exports seen rising and soaring temperatures expected to boost cooling demand, especially in Texas.
Front-month gas futures for July delivery on the New York Mercantile Exchange traded 6.4 cents higher, or 2.4%, to $2.79 per million British thermal units at 9:34 a.m. EDT.
“We’ve seen a pullback on drilling and increasing demand for LNG exports,” said Phil Flynn, an analyst at Price Futures Group, adding the hot temperatures in Texas were increasing cooling demand.
U.S. energy firms this week cut the number of oil and natural gas rigs operating for an eighth week in a row for the first time since July 2020, energy services firm Baker Hughes Co said in its closely followed report on Friday.
Data provider Refinitiv predicted demand for exports of liquefied natural gas (LNG) to rise from 11 billion cubic feet per day (bcfd) last week to 11.5 bcfd this week and 12.6 next week.
The number of cooling degree days (CDDs) in the coming two weeks were also forecasted at 214, above the 10-year norm of 197 and the 30-year norm of 187.
CDDs, used to estimate demand to cool homes and businesses, measure the number of degrees a day’s average temperature is above 65 degrees Fahrenheit.
U.S power plants were seen consuming 41.1 bcfd of gas this week, up from 38.5 bcfd last week, and growing to 44.5 bcfd next week.
The higher LNG exports and power plant demand was expected to drive up total U.S. demand for natural gas from 94.7 bcfd last week to 97.9 bcfd this week, before rising to 102 bcfd next week.
Texas’ power grid operator, the Electric Reliability Council of Texas (ERCOT), on Monday again projected electricity use would break records this week as homes and business cranked up air conditioning amid soaring temperatures. ERCOT also projected power use would reach record highs last week but demand fell short of the record after storms and storm-related power outages reduced usage and consumers heeded the grid operator’s June 20th call to conserve energy.
Regardless of when demand sets a new all-time high, the heat should boost the amount of gas generators burn to produce power for air conditioning since Texas gets most of its electricity from gas-fired plants.
In 2022, about 49% of the state’s power came from gas-fired plants, with most of the rest from wind (22%), coal (16%), nuclear (8%) and solar (4%), according to federal energy data.
Meanwhile, Dutch and British wholesale gas prices rose, lifted by concern over the political situation in Russia and confirmation that the Netherlands’ Groningen gas field will close this year.
(Reporting by Deep Vakil in Bengaluru; Editing by Andrea Ricci)