U.S. natural gas futures climbed about 3% to a one-week high on Monday on forecasts for hotter weather that should boost cooling demand more than previously expected through late July, especially in Texas.
That price increase materialized even though drillers were pulling near record amounts of gas out of the ground.
The Electric Reliability Council of Texas (ERCOT), the state’s power grid operator, projected electricity use would reach record highs on Tuesday and Thursday as homes and businesses crank up their air conditioners to escape the latest heat wave.
Extreme heat boosts the amount of gas generators burn to produce power for cooling, especially in Texas, which 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 August delivery on the New York Mercantile Exchange were up 7.1 cents, or 2.8%, to $2.653 per million British thermal units (mmBtu) at 9:17 a.m. EDT (1317 GMT). On Friday, the contract closed at its lowest level since June 20.
Despite last week’s price decline, speculators boosted their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges to their highest levels since June 2022 for a third week in a row, according to the U.S. Commodity Futures Trading Commission’s Commitments of traders report.
A lack of big price moves in recent weeks has cut historic or actual 30-day close-to-close futures volatility to 59.2%, its lowest level since April 2022 for a second day in a row.
On a daily basis, historic volatility hit a record high of 177.7% in February 2022 and a record low of 7.3% in June 1991. So far this year, historic volatility has averaged 85.6%. That compares with an annual record high of 92.8% in 2022 and a five-year (2018-2022) average of 57.9%.
SUPPLY AND DEMAND
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 102.2 billion cubic feet per day (bcfd) so far in July, up from 100.9 bcfd in June. That is on track to top the monthly record high of 101.9 bcfd in May.
Meteorologists forecast the weather in the Lower 48 states would turn hotter-than-normal through at least July 25.
With higher temperatures coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 103.0 bcfd this week to 107.1 bcfd next week. Those forecasts were similar to Refinitiv’s outlook on Friday.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 13.1 bcfd so far in July from 11.4 bcfd in June. That is still well below the monthly record of 14.0 bcfd in April due to ongoing maintenance at several facilities, including Cheniere Energy Inc’s Sabine Pass in Louisiana and Corpus Christi in Texas.
The record 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 Paul Simao)