U.S. natural gas futures held near a three-month high on Tuesday, on a drop in output and forecasts for the weather to remain hot through mid-July, especially in Texas.
That lack of price movement came despite forecasts for less demand this week than previously expected, due in part to a decline in the amount of gas flowing to liquefied natural gas (LNG) export plants.
The Electric Reliability Council of Texas (ERCOT), the state’s power grid operator, again projected electric use would break records, this time Tuesday and Wednesday, June 27-28.
ERCOT, however, has forecast and missed record-breaking demand on several days since mid-June, due in part to storm-related power outages that reduced usage and after consumers heeded the grid operator’s June 20th call to conserve energy.
Regardless of when demand sets a new all-time high, extreme heat will continue to 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.
Front-month gas futures for July delivery on the New York Mercantile Exchange remained unchanged at $2.791 per million British thermal units at 8:46 a.m. EDT (1246 GMT). On Monday, the contract closed at its highest since March 3 for a second day in a row.
That kept the front-month in overbought territory, with a relative strength index (RSI) above 70 for a third day in a row for the first time since July 2022.
RSI measures the speed and magnitude of recent price changes to evaluate overvalued or undervalued conditions.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states fell from a record 102.5 billion cubic feet per day (bcfd) in May to 101.5 bcfd so far in June.
On a daily basis, moreover, output was on track to plunge 2.3 bcfd to a preliminary 20-week low of 99.2 bcfd on Tuesday due mostly to declines in Pennsylvania and Texas. That would be the biggest daily drop in output since December 2022, but analysts noted preliminary data is often revised later in the day.
Meteorologists forecast weather in the Lower 48 states would remain hotter than normal from June 28-July 12.
With hotter weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 97.0 bcfd this week to 102.2 bcfd next week. The forecast for this week was lower than Refinitiv’s outlook on Monday.
U.S. exports to Mexico rose to an average of 6.6 bcfd so far in June from 6.2 bcfd in May. That compares with a monthly record high of 6.7 bcfd in June 2021.
Gas flows to the seven big U.S. LNG export plants fell to an average of 11.4 bcfd so far in June, down from 13.0 bcfd in May. That is well below the monthly record high of 14.0 bcfd in April due to maintenance at several facilities, including Cheniere Energy Inc’s Sabine Pass in Louisiana and Corpus Christi in Texas.
Record LNG flows in April exceeded the 13.8 bcfd of gas the seven big plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG.
(Reporting by Scott DiSavino; editing by Jonathan Oatis)