U.S. natural gas futures climbed about 5% to a two-week high on Thursday on a smaller-than-expected storage build, a drop in daily output and forecasts for higher demand next week than previously expected and hotter-than-normal weather through early August, especially in Texas.
That price increase occurred despite slow growth in the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants due to ongoing maintenance work at several facilities.
The U.S. Energy Information Administration (EIA) said utilities added 41 billion cubic feet (bcf) of gas into storage during the hotter-than-normal week ended July 14.
That was lower than the 48-bcf build analysts forecast in a Reuters poll and compares with an increase of 35 bcf in the same week last year and a five-year (2018-2022) average increase of 45 bcf.
Last week’s increase boosted stockpiles to 2.971 trillion cubic feet (tcf), or 13.8% above the five-year average of 2.611 tcf for the time of year.
Power demand in Texas hit a record high for a second day in a row on Tuesday and will likely break that record again on Thursday, and next week, as homes and businesses keep air conditioners cranked up to escape a lingering 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 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 were up 12.3 cents, or 4.7%, to $2.726 per million British thermal units at 10:37 a.m. EDT (1437 GMT), putting the contract on track for its highest close since June 30.
A lack of rapid price moves in recent weeks – futures have not settled up or down more than 5% so far in July – cut the contract’s 30-day implied volatility index to 58.1%, its lowest level since April 2022. The market uses implied volatility to estimate likely price changes in the future.
At-the-money 30-day implied volatility NGATMIV, a determinant of an option’s premium, has averaged 76.2% so far in 2023, down from 80.6% in 2022 and a five-year (2018-2022) average of 53.2%.
SUPPLY AND DEMAND
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen 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.
On a daily basis, however, output was on track to drop by 1.3 bcfd over the past two days to a preliminary one-week low of 100.4 bcfd on Thursday due mostly to declines in Oklahoma and North Dakota.
Meteorologists forecast the weather in the Lower 48 states would remain hotter-than-normal through at least Aug. 4.
With warmer weather coming and LNG export plants expected to consume more gas, Refinitiv forecast U.S. gas demand, including exports, would rise from 105.7 bcfd this week to 106.8 bcfd next week. The forecast for next week was higher than Refinitiv’s outlook on Wednesday.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 12.8 bcfd so far in July from 11.6 bcfd in June. That, however, was still well below the monthly record of 14.0 bcfd in April due to ongoing maintenance at several facilities in Louisiana, including Cameron LNG, Cheniere Energy’s Sabine Pass and Venture Global LNG’s Calcasieu.
(Reporting by Scott DiSavino; Editing by Nick Zieminski and Paul Simao)