U.S. natural gas futures jumped nearly 6% to a five-month high on Wednesday as sustained hotter-than-normal weather kept air conditioning demand high, especially in Texas.
Front-month gas futures for September delivery on the New York Mercantile Exchange were up 16.1 cents, or 5.8%, to $2.94 per million British thermal units (mmBtu) at 09:44 a.m. EDT (1344 GMT).
“There’s no question about the sustainability of natural gas demand over the past month or so because of the super hot weather and a lot of gas consuming areas in the United States,” said Thomas Saal, senior vice president for energy at StoneX Financial.
Prices rose above $3 per mmBtu earlier in the session, helped by short-covering from speculators, Saal said.
Power demand in Texas hit an all-time high on Monday and will likely break that record again this week as homes and businesses keep their air conditioners cranked up during the 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 from wind (22%), coal (16%), nuclear (8%) and solar (4%), federal energy data showed.
Meteorologists forecast the weather in the Lower 48 states will remain hotter than normal through at least Aug. 24.
Data provider Refinitiv forecast U.S. gas demand, including exports, would rise from 102.9 billion cubic feet per day (bcfd) this week to 104.8 bcfd next week as power generators burn more of the fuel and exports rise. Those numbers were slightly lower from Tuesday’s forecast.
Refinitiv said average gas output in the U.S. lower 48 states was 101.9 bcfd so far in August, nearly the same as the 101.8 bcfd in July. That compares with a monthly record of 102.2 bcfd in May.
On a daily basis, however, output was on track to drop on a preliminary basis by 2.5 bcfd to more than a two-week low of 100.2 bcfd on Wednesday.
Gas flows to the seven big U.S. LNG export plants have fallen from an average of 12.7 bcfd in July to 12.1 bcfd so far in August, mainly due to reductions at Cheniere Energy’s Corpus Christi, Texas facility and Sabine Pass plant in Louisiana and Venture Global LNG’s Calcasieu facility in Louisiana. That compares with a monthly record of 14.0 bcfd in April.
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 the war in Ukraine.
In 2022, roughly 69%, or 7.2 bcfd, of U.S. LNG exports went to Europe as shippers diverted cargoes from Asia to get higher prices. In 2021, when prices in Asia were higher, just 35%, or about 3.3 bcfd, of U.S. LNG exports went to Europe.
With the return of higher gas prices in Asia this year, analysts said they expect U.S. LNG exports to Asia will increase. But that has not happened yet. Just 19%, or 2.1 bcfd, of U.S. LNG exports went to Asia during the first half of 2023, while 70%, or 8.0 bcfd, went to Europe.
(Reporting by Harshit Verma in Bengaluru; Editing by Paul Simao)