U.S. natural gas futures extended losses to a near one-week low on Wednesday, weighed down by forecasts for lower demand over the next two weeks than previously expected and rising output.
The price drop came despite forecasts for hotter than normal weather continuing through mid-August, especially in Texas.
Front-month gas futures for September delivery on the New York Mercantile Exchange fell 5.2 cents, or 2%, to $2.51 per million British thermal units (mmBtu) at 9:33 a.m. EDT (1333 GMT).
“Even with the record high temperatures and record power generation demand, the market fails to rally because we’ve seen some very strong production numbers here in the US,” said Phil Flynn, an analyst at Price Futures Group.
“We’re going to be locked in the $0.20 range and there’s limited downside from here and a little bit more upside though we’re not looking for a major move in either direction,” Flynn added.
Demand for power in Texas hit a record high on Tuesday for the second day in a row, and will likely break that high on Wednesday 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.
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 1.6 bcfd to a preliminary more than one-week low of 100.4 bcfd on Wednesday. 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 slightly from 104.9 bcfd this week to 105 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 Tuesday.
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 Brijesh Patel and Rahul Paswan in Bengaluru; Editing by Alexander Smith)