U.S. natural gas futures climbed about 3% on Monday on forecasts for more demand this week than previously expected and a continued drop in output as producers reduce drilling activities after gas prices fell to 3-1/2-year lows in February and March.
Gas prices increased despite forecasts for milder weather and lower demand next week than previously expected, negative spot power and gas prices in parts of Texas, California and Arizona over the past few weeks and ample amounts of gas in storage.
Front-month gas futures for May delivery on the New York Mercantile Exchange rose 5.9 cents, or 3.3%, to settle at $1.844 per million British thermal units (mmBtu).
With gas prices up for a second week in a row last week, speculators cut their net short futures and options positions on the New York Mercantile and Intercontinental Exchanges for a sixth week in a row to their lowest since late January, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
Analysts projected gas stockpiles were about 37% above normal levels for this time of year.
A drop in gas prices to a 3-1/2-year low earlier this year prompted drillers to cut the number of gas rigs operating in gas producing basins like the Haynesville shale in Louisiana, Texas and Arkansas. Baker Hughes said the Haynesville lost two rigs last week, leaving just 34 rigs active, the fewest since August 2020.
Electric grids across the U.S. were dealing with a rapid decline in solar generation during a total solar eclipse. That loss of solar power should temporarily boost demand for gas to produce electricity. Solar produces about 5% of the nation’s power supplies.
In the spot market, next-day power prices in California and Arizona continued to hit fresh record lows below zero, according to prices from SNL Energy on the LSEG terminal.
Over the past few weeks, daily power and gas prices in Texas, California and Arizona have traded below zero due to low demand, ample renewable sources of power and pipeline maintenance that has trapped gas in Texas.
SUPPLY AND DEMAND
Financial firm LSEG said gas output in the Lower 48 U.S. states fell to an average of 99.4 billion cubic feet per day (bcfd) so far in April, down from 100.8 bcfd in March. That compares with a monthly record high of 105.6 bcfd in December 2023.
Meteorologists projected weather across the Lower 48 would remain warmer than normal through at least April 23.
With warmer weather coming, LSEG forecast gas demand in the Lower 48, including exports, would fall from 101.2 bcfd this week to 96.4 bcfd next week. The forecast for this week was higher than LSEG’s outlook on Friday, while its forecast for next week was lower.
Gas flows to the seven big U.S. liquefied natural gas (LNG) export plants slid to an average of 12.5 bcfd so far in April, down from 13.1 bcfd in March. That compares with a monthly record of 14.7 bcfd in December.
Analysts do not expect U.S. LNG feedgas to return to record levels until all three liquefaction trains at Freeport LNG’s plant in Texas return to service.
Freeport has said it expects Trains 1 and 2 to remain shut until May for inspections and repairs, while Train 3 was operating. Each Freeport train can turn about 0.7 bcfd of gas into LNG.
(Reporting by Scott DiSavino; Editing by Andrea Ricci)