U.S. natural gas futures climbed about 4% on Tuesday on forecasts for the weather to remain hotter-than-normal through early August, especially in Texas.
That price increase came despite rising output, forecasts for less demand next week than previously expected and lower than usual amounts of gas flowing to U.S. liquefied natural gas (LNG) export plants due to ongoing maintenance outages.
Power demand in Texas hit a record high on Monday and will likely break that on Tuesday as homes and businesses keep air conditioners cranked up to escape another brutal heatwave, 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 coming 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 rose 9.4 cents, or 3.7%, to $2.606 per million British thermal units (mmBtu) at 8:49 a.m. EDT (1249 GMT). On Monday, the contract closed at its lowest since June 20 for a third day in a row.
SUPPLY AND DEMAND
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 101.6 billion cubic feet per day (bcfd) so far in July, up from 101.0 bcfd in June. That compares with a monthly record of 101.8 bcfd in May.
Meteorologists forecast the weather in the Lower 48 states would remain hotter-than-normal through at least Aug. 2.
Refinitiv forecast U.S. gas demand, including exports, would hold near 108.6 bcfd this week and next. The forecast for next week was lower than Refinitiv’s outlook on Monday.
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. That, however, remained 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 U.S. is on track to become the world’s biggest LNG supplier in 2023 – ahead of recent leaders Australia and Qatar – as much higher global prices continue to feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s war in Ukraine.
Gas was trading around $9 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $11 at the Japan Korea Marker (JKM) in Asia.
That puts global gas prices down about 65% so far this year after hitting record highs in 2022, due to mild winter temperatures and above-average storage inventories in the northern hemisphere. U.S. gas futures were down about 42% so far this year.
In 2022, roughly 69%, or 7.2 bcfd, of U.S. LNG exports went to Europe as shippers diverted cargoes from Asia to get higher prices. In 2021, when prices in Asia were higher, just 35%, or about 3.3 bcfd, of U.S. LNG exports went to Europe.
With the return of higher gas prices in Asia this year, analysts said they expect U.S. LNG exports to Asia will increase. But that has not happened yet. Just 19%, or 2.1 bcfd, of U.S. LNG exports went to Asia during the first half of 2023, while 70%, or 8.0 bcfd, went to Europe.
(Reporting by Scott DiSavino, Editing by Nick Zieminski)