U.S. natural gas futures edged up about 1% to a one-week high on Tuesday on a drop in daily output and forecasts for hotter-than-normal weather to continue through late July, especially in Texas.
The Electric Reliability Council of Texas (ERCOT), the state’s power grid operator, projected electricity use would reach new record highs on Tuesday, Thursday and next week as homes and businesses crank up their air conditioners to escape the latest heat wave. The current record was hit on June 27.
Extreme heat boosts the amount of gas generators have to 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.
In Appalachia, the nation’s biggest shale gas producing basin, U.S. energy company Equitrans Midstream said it is evaluating all legal options, including an emergency appeal to the U.S. Supreme Court, after an appellate court halted construction of the West Virginia-Virginia Mountain Valley gas pipeline in the Jefferson National Forest.
Mountain Valley is the biggest project under construction in Appalachia and is key to unlocking more gas supplies in the pipeline-constrained region.
Front-month gas futures for August delivery on the New York Mercantile Exchange were up 2.2 cents, or 0.8%, to $2.691 per million British thermal units (mmBtu) at 9:31 a.m. EDT (1331 GMT), putting the contract on track for its highest close since July 3 for a second day in a row.
A lack of big price moves in recent weeks has cut historic or actual 30-day close-to-close futures volatility to 58.2%, the lowest level since April 2022. 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.
Historic volatility has averaged 85.4% so far this year, a 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 102.1 billion cubic feet per day (bcfd) so far in July, up from 101.0 bcfd in June. That is on track to top the monthly record high of 101.8 bcfd in May.
On a daily basis, however, output fell 2.0 bcfd to a preliminary two-week low of 99.8 bcfd on Tuesday due to declines in Texas, West Virginia and North Dakota. That would be the biggest one-day production drop since December 2022. Traders, however, noted that preliminary data is often revised later in the day.
Meteorologists forecast the weather in the Lower 48 states would remain hotter than normal through at least July 25.
With hotter weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 100.4 bcfd this week to 105.9 bcfd next week.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 13.0 bcfd so far in July from 11.6 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.
(Reporting by Scott DiSavino; Editing by Paul Simao)