U.S. natural gas futures eased about 1% on Tuesday on forecasts for less demand over the next two weeks than previously expected.
That small price decline came despite a drop in daily output and forecasts for the weather to remain hotter-than-normal through early August, especially in Texas.
Power demand in Texas hit a record high on July 18 and will likely break that record on Tuesday and again next week as homes and businesses keep their air conditioners cranked up to escape a lingering heatwave, said the Electric Reliability Council of Texas (ERCOT), the state’s power grid operator.
Extreme heat boosts the amount of gas burned 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%), federal energy data showed.
Front-month gas futures for August delivery on the New York Mercantile Exchange fell 2.3 cents, or 0.9%, to $2.662 per million British thermal units (mmBtu) at 9:10 a.m. EDT (1310 GMT).
A lack of rapid price moves in recent weeks – futures settled up or down 5% just once in July – cut the contract’s 30-day implied volatility index to 54.9%, its lowest since March 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 75.9% 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 rose to 101.5 billion cubic feet per day (bcfd) so far in July, 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 3.0 bcfd to a preliminary four-month low of 98.9 bcfd on Tuesday due mostly to declines in Texas, Pennsylvania and Colorado. Analysts have noted that preliminary data is often revised later in the day.
Meteorologists forecast the weather in the Lower 48 states will remain hotter than normal through at least Aug. 9.
With hotter weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 105.8 bcfd this week to 107.0 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Monday.
Gas flows to the seven big U.S. LNG export plants rose to an average of 12.8 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 Freeport LNG in Texas and Cheniere Energy’s Sabine Pass in Louisiana.
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 $10 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 60% so far this year after hitting record highs in 2022 due to mild winter temperatures that left northern hemisphere storage at above-normal levels. U.S. gas futures were down about 40% so far this year.
(Reporting by Scott DiSavino, Editing by Nick Zieminski)