U.S. natural gas futures were little changed as the market waited for direction from a federal report expected to show last week’s storage build was smaller than usual for this time of year as hotter-than-normal weather caused power generators to burn more gas to meet air conditioning demand.
That lack of price movement came despite another bullish drop in daily output and forecasts for hotter-than-normal weather and higher cooling demand to continue through the end of July, especially in Texas.
It also came despite a decline in gas demand due to ongoing maintenance work that has limited the amount of gas flowing to the country’s liquefied natural gas (LNG) export plants.
Power demand in Texas hit a record high on Wednesday, and is expected to top that on Thursday and Friday as homes and businesses keep their air conditioners cranked up to escape another brutal heat wave, according to the Electric Reliability Council of Texas (ERCOT), the state’s power grid operator.
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.
Analysts forecast U.S. utilities added 51 billion cubic feet (bcf) of gas into storage during the week ended July 7. That compares with an increase of 59 bcf in the same week last year and a five-year (2018-2022) average increase of 55 bcf.
If correct, last week’s increase would boost stockpiles to 2.928 trillion cubic feet (tcf), or 14.1% above the five-year average of 2.566 tcf for the time of year.
Front-month gas futures for August delivery on the New York Mercantile Exchange fell 0.5 cent, or 0.2%, to $2.627 per million British thermal units (mmBtu) at 9:03 a.m. EDT (1303 GMT).
A lack of big price moves in recent weeks has cut historic or actual 30-day close-to-close futures volatility to 54.0%, the lowest level since April 2022 for a third 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.
Historic volatility has averaged 84.9% so far this year, a record high of 92.8% in 2022 and a five-year (2018-2022) average of 57.9%.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 101.8 billion cubic feet per day (bcfd) so far in July, up from 101.0 bcfd in June. That compares with a monthly record high of 101.8 bcfd in May.
On a daily basis, however, output fell about 3.0 bcfd over the past six days to a preliminary two-week low of 99.7 bcfd on Wednesday due mostly to declines in Pennsylvania, Texas and North Dakota. Traders, however, noted 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 28.
With hotter weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 100.9 bcfd this week to 105.9 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Wednesday.
Gas flows to the seven big U.S. LNG export plants rose to an average of 12.7 bcfd so far in July from 11.6 bcfd in June. But, 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 Jonathan Oatis)