U.S. natural gas futures edged up around 1% on Wednesday on forecasts for colder weather and higher heating demand over the next two weeks than previously expected, and as record amounts of gas flowed to U.S. liquefied natural gas (LNG) export plants.
The price increase came despite near-record U.S. output and forecasts for mostly mild weather through late December that have allowed utilities to leave more gas in storage to meet heating demand. Analysts forecast U.S. gas stockpiles on Dec. 1 were about 7.2% above normal levels for this time of year.
Front-month gas futures for January delivery on the New York Mercantile Exchange rose 2 cents, or 0.7%, to $2.730 per million British thermal units (mmBtu) at 9:20 a.m. EST (1420 GMT).
Despite Wednesday’s price increase, the futures market has been sending signals for weeks that many traders do not expect to see price spikes this winter (November-March) due to record production and ample amounts of gas in storage. In fact, many in the market think futures for this heating season have already peaked in November.
In the spot market, cold weather in New England boosted next-day power to $117.25 per megawatt hour and gas to $13.04 per mmBtu, their highest levels since February.
It is common for power and gas prices to soar when it turns cold in New England because the amount of gas able to flow to the region in limited by pipeline constraints and most of the gas that does get to the region is used to heat homes and businesses. That leaves little gas for power plants have to switch to more expensive fuels like oil and liquefied natural gas (LNG).
In 2022, about 54% of power generated in New England came from gas-fired plants with the rest coming from nuclear (27%), hydro (7%), other (5%), wind (4%), oil (2%) and solar (1%).
Cold weather also boosted next-day gas prices for Wednesday to their highest since February in New York but only to $3.66 per mmBtu because New York has access to more piped gas than New England.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states slid to 107.5 billion cubic feet per day (bcfd) so far in December, down from a record 107.8 bcfd in November.
On a daily basis, output was on track to drop by 2.1 bcfd over the past three days to a preliminary four-week low of 106.2 bcfd on Wednesday. Traders, however, have noted that preliminary data is often revised later in the day.
Meteorologists projected the weather would turn from warmer-than-normal Dec. 6-12 to near-normal from Dec. 13-16 before switching back to warmer-than-normal from Dec. 17-21.
With seasonally colder weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 121.8 bcfd this week to 126.2 bcfd next week. Those forecasts were higher than LSEG’s outlook on Tuesday.
Gas flows to the seven big U.S. LNG export plants rose to an average of 14.4 bcfd so far in December, up from a record 14.3 bcfd in November.
The U.S. is on track to become the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar. Much higher global prices have fed demand for U.S. exports due in part to supply disruptions and sanctions linked to the war in Ukraine.
Gas was trading around $12 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $16 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino; editing by David Evans)