U.S. natural gas futures gained about 2% on Friday on forecasts for more demand over the next two weeks than previously expected as the weather remains hotter than normal through at least mid-August.
Meteorologists forecast Friday will be the hottest day of the summer so far in the U.S. Lower 48 states and the second hottest on record, according to Refinitiv data going back to 2018. Data provider Refinitiv forecast temperatures across the Lower 48 states would average 82.8 degrees Fahrenheit (28.8 Celsius) on Friday, just shy of the 83.0 F record set on July 20, 2022.
Extreme heat already this week has stressed electric grids and boosted some spot power prices to their highest in months as homes and businesses crank up their air conditioners to escape the brutal heat wave blanketing much of the country.
Grid operators across the nation declared hot weather alerts this week and told energy companies to put off unnecessary maintenance so all available generating plants and power lines would be ready for service. Despite the extreme heat, however, no grid operator has forecast power use would break all-time highs this week.
In Texas, however, the Electric Reliability Council of Texas, the state’s grid operator, forecast demand would to set new records next week on Monday, Tuesday, Wednesday and Friday as the heat wave lingers.
U.S. power generators will likely burn a record amount of gas to produce electricity for a second day in a row on Friday. Refinitiv forecast power generators would burn about 52.9 billion cubic feet per day (bcfd) of gas on Friday, which would top the current record of 52.3 bcfd on Thursday and recent highs of 50.3 bcfd on July 14 and 49.6 bcfd on July 20, 2022.
The U.S. Energy Information Administration (EIA), which uses a different data set, has said the 2022 record was set on July 21.
On its first day as the front-month, gas futures for September delivery on the New York Mercantile Exchange rose 5.5 cents, or 2.1%, from where the September contract closed on Thursday to $2.650 per million British thermal units at 10:17 a.m. EDT (1417 GMT).
That, however, is up about 5% from where the August contract closed at when it was still the front-month on Thursday.
For the week, the contract was down about 3% after gaining about 7% last week.
In the spot market, next-day power for Friday soared to $158 per megawatt hour in SP-15 in Southern California, its highest since January, and $113 at the Massachusetts hub in New England, its highest since February.
SUPPLY AND DEMAND
Refinitiv said average gas output in the Lower 48 states rose to 101.5 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 about 1.9 bcfd to a preliminary one-month low of 99.7 bcfd on Friday due mostly to declines in Pennsylvania, Ohio, West Virginia 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. 12.
Refinitiv forecast U.S. gas demand, including exports, would rise from 105.4 bcfd this week to 106.5 bcfd next week before easing to 106.2 bcfd as the weather starts to become seasonally less hot. The forecasts for this week and next were higher than Refinitiv’s outlook on Thursday.
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 is still well below the monthly record of 14.0 bcfd in April due to ongoing maintenance at several facilities.
(Reporting by Scott DiSavino; editing by Jonathan Oatis)