U.S. natural gas futures slid about 2% on Tuesday with a major, demand-destroying hurricane expected to hit Florida on Wednesday and forecasts for less hot weather and lower gas use next week than previously expected.
Hurricane Idalia is expected to strengthen into a major hurricane with maximum sustained winds of 120 miles per hour (193 kilometers per hour) before hitting the northwest coast of Florida early Wednesday, according to the U.S. National Hurricane Center (NHC).
Traders said Idalia would likely knock out power to over a million homes and businesses, which would cut demand for both power and gas later this week. Florida consumed about 4.4 billion cubic feet per day (bcfd) of gas in 2022, with most of that fuel, about 3.8 bcfd, burned to produce power.
On their last day as the front-month, U.S. gas futures for September delivery on the New York Mercantile Exchange fell 4.8 cents, or 1.9%, to $2.531 per million British thermal units (mmBtu) at 9:20 a.m. EDT (1320 GMT).
Futures for October, which will soon be the front-month, were down about 2 cents to $2.65 per mmBtu.
Despite worries about a possible strike at U.S. energy major Chevron’s liquefied natural gas (LNG) export plants in Australia, gas prices in Europe fell about 7% to around $11 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark on Tuesday, after soaring 20% over the prior two days.
Australia, along with Qatar and the U.S., is one of the world’s biggest LNG producers. If Australia’s LNG supplies decline, analysts expect global gas prices will rise.
Despite the end of the heat wave that boosted demand in Texas to near record highs over the past couple of weeks, the state’s power grid operator, the Electric Reliability Council of Texas (ERCOT), projected electric supplies would only exceed demand by less than 2,000 megawatts around 8 p.m. local time on Tuesday.
Between Aug. 24 and Aug. 27, tight supplies forced ERCOT to urge customers to conserve energy after the sun went down and solar power stopped working.
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.
Data provider Refinitiv said average gas output in the lower 48 U.S. states fell to 101.1 bcfd so far in August, down from 101.8 bcfd in July. That compares with a monthly record of 102.2 bcfd in May.
On a daily basis, output was on track to drop by 2.5 bcfd to a preliminary two-month low of 99.1 bcfd on Tuesday due mostly to reductions in Colorado, North Dakota and West Virginia. That would be the biggest daily decline in production since early August but energy traders noted that preliminary data is often revised.
Even though the heat wave broke, meteorologists still forecast the weather in the lower 48 U.S. states will remain mostly hotter than normal through at least Sept. 13.
But with a seasonal cooling of the weather, Refinitiv forecast U.S. gas demand, including exports, would slide from 104.1 bcfd this week to 102.8 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Monday.
Gas flows to the seven big U.S. LNG export plants fell from an average of 12.7 bcfd in July to 12.2 bcfd so far in August due mostly to reductions at Cheniere Energy’s Sabine Pass in Louisiana and Corpus Christi in Texas. That compares with a monthly record of 14.0 bcfd in April.
(Reporting by Scott DiSavino, Editing by Nick Zieminski)