U.S. natural gas futures slid about 2% on Wednesday on forecasts for less demand next week than previously expected, rising output and an ongoing oversupply of gas in storage.
Analysts said there was still about 17% more gas in storage than normal for this time of year even though injections have been smaller than usual for nine of the past 10 weeks after several producers cut output earlier in the year when futures prices dropped to 3-1/2 year lows in February and March.
Higher prices in April and May, however, prompted some drillers, including EQT and Chesapeake Energy, to boost output in June and July.
EQT is the nation’s biggest gas producer and Chesapeake is on track to become the biggest after its planned merger with Southwestern Energy. EQT posted a smaller-than-expected second-quarter loss on Tuesday on higher sales volumes.
Front-month gas futures for August delivery on the New York Mercantile Exchange fell 4.8 cents, or 2.2%, to $2.139 per million British thermal units at 10:09 a.m. EDT (1409 GMT).
That price decline came despite the latest weather forecast calling for extreme heat to return in August, which should boost the amount of gas power generators burn to produce electricity to keep air conditioners humming.
Meteorologists forecast temperatures across the Lower 48 states will average around 83.2 degrees Fahrenheit (28.4 Celsius) on Aug. 2, according to LSEG data.
That would top the current record high temperature average of 83.0 F set on July 20, 2022 when power demand hit an all-time high of 742,600 megawatts, according to federal energy data.
In addition to the heat, power generators were burning more gas this week after the amount of electricity produced by wind farms in the Lower 48 states fell to a 33-month low on Monday.
SUPPLY AND DEMAND
Financial firm LSEG said gas output in the Lower 48 states rose to an average of 102.4 billion cubic feet per day (bcfd) so far in July, up from an average of 100.2 bcfd in June and a 17-month low of 99.4 bcfd in May.
U.S. output hit a monthly record high of 105.5 bcfd in December 2023.
Meteorologists projected weather across the Lower 48 would remain mostly near normal through July 28 before turning hotter than normal through at least Aug. 8.
With hotter weather coming, LSEG forecast average gas demand in the Lower 48, including exports, will rise from 105.2 bcfd this week to 105.8 bcfd next week. The forecast for this week was higher than LSEG’s outlook on Tuesday, while the forecast for next week was lower.
Gas flows to the seven big U.S. LNG export plants fell to 11.6 bcfd so far in July after Freeport shut before Hurricane Beryl hit the Texas Coast on July 8, down from 12.8 bcfd in June and a monthly record high of 14.7 bcfd in December 2023.
On a daily basis, however, LNG feedgas was on track to reach a two-week high of 12.6 bcfd on Tuesday as the 2.1-bcfd Freeport slowly returns to service.
Gas flows to Freeport, which started to exit a nine-day outage on July 16, held near 1.4 bcfd for a third day in a row on Wednesday after the plant pulled in almost no gas from July 7-15. Traders said that meant Freeport was likely running two of the plant’s three liquefaction trains.
(Reporting by Scott DiSavino)