U.S. natural gas futures fell around 4% on Tuesday on forecasts for less demand over the next two weeks than previously expected.
The price decline came despite a preliminary drop in daily output and forecasts for hotter than normal weather to continue through mid-August, especially in Texas.
Power demand in Texas hit an all-time high on Monday, topping the prior record set on July 18, and will likely break that high again on Tuesday and next week as homes and businesses keep their air conditioners cranked up to escape a lingering heat wave, according to forecasts by 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.
That Texas record came a few days after overall U.S. power demand hit its highest so far this year (and second highest ever) on July 27 – the hottest day this summer, according to data from the U.S. Energy Information Administration (EIA) going back to 2016.
EIA said power use hit 14.7 million megawatt hours (MWh) on July 27, just shy of the 14.8-million MWh record on July 20, 2022. Data provider Refinitiv said temperatures in the U.S. Lower 48 states averaged 82.2 degrees Fahrenheit (27.9 Celsius) on July 27, a little short of the record 83.0 F on July 20, 2022, according to data going back to 2018.
Front-month gas futures for September delivery on the New York Mercantile Exchange fell 9.5 cents, or 3.6%, to $2.539 per million British thermal units (mmBtu) at 9:26 a.m. EDT (1326 GMT).
In the spot market, next-day gas for Tuesday at the Waha hub in West Texas plunged about 81% to 47 cents per mmBtu, the lowest since briefly turning negative in early May.
Traders said Waha prices fell due in part to the shutdown of the 2.1-billion cubic feet per day (bcfd) Permian Highway Pipeline late on July 27 due to what the company told customers was “an operational incident”. Permian Highway transports gas from West Texas to the Gulf Coast.
That shutdown depressed Waha prices by trapping gas in the Permian basin in West Texas and eastern New Mexico. Permian Highway told customers that the pipe was back in service late on July 31 with around 1.2 bcfd of capacity available and should be back at full service Tuesday morning.
SUPPLY AND DEMAND
Refinitiv said average gas output in the Lower 48 states rose to 101.7 bcfd in July, up from 101.0 bcfd in June but just shy of the 101.8-bcfd monthly record set in May due to pipeline maintenance earlier in the month.
On a daily basis, however, output was on track to drop by 2.8 bcfd to a preliminary two-week low of 99.9 bcfd on Tuesday. That would be the biggest one-day decline in output since December, but traders noted preliminary data – especially at the start of the month – is often revised by large amounts later in the day.
Meteorologists forecast the weather in the Lower 48 states will remain mostly hotter than normal through at least Aug. 16.
With more hot weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 106.1 bcfd this week to 106.9 bcfd next week as power generators burn more of the fuel to meet rising air conditioning demand. Those forecasts were lower than Refinitiv’s outlook on Monday.
Gas flows to the seven big U.S. liquefied natural gas (LNG) export plants rose to an average of 12.7 bcfd in July, up 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.
(Reporting by Scott DiSavino; editing by David Evans)