U.S. natural gas futures jumped about 6% to a seven-week high on Thursday on a smaller-than-expected storage build, rising gas flows to liquefied natural gas export plants and a continued decline in output so far this month.
That price spike came despite forecasts for less hot weather over the next two weeks than previously expected, which should reduce the amount of gas power generators burn to keep air conditioners humming.
The U.S. Energy Information Administration (EIA) said utilities added 13 billion cubic feet (bcf) of gas into storage during the week ended Aug. 30.
That was well below the 27-bcf build analysts forecast in a Reuters poll and compares with an increase of 33 bcf in the same week last year and a five-year (2019-2023) average rise of 51 bcf for this time of year.
Even though last week’s build was smaller than normal for the 16th time in 17 weeks, there was still about 11% more gas in storage than is normal for this time of year.
Analysts have said that oversupply of gas left in storage after a mild winter has kept prices depressed all year, prompting several producers to cut output. Those output cuts were the reason for the smaller than normal weekly builds. Spot gas prices at the U.S. Henry Hub benchmark fell to 25-year lows earlier this year.
Front-month gas futures for October delivery on the New York Mercantile Exchange rose 12.5 cents, or 5.8%, to $2.270 per million British thermal units (mmBtu) at 10:41 a.m. EDT (1441 GMT), putting the contract on track for its highest close since July 12.
In the spot market, a heat wave in the U.S. West caused power prices to soar over 400% to their highest levels since August 2023 to around $160 per megawatt hour (MWh) at the Palo Verde hub in Arizona and $150 at South Path 15 (SP-15) in Southern California as homes and businesses cranked up their air conditioners.
SUPPLY AND DEMAND
Financial firm LSEG said gas output in the Lower 48 U.S. states has slid to an average of 102.2 billion cubic feet per day (bcfd) so far in September, down from 103.2 bcfd in August.
On a daily basis, output was on track to drop by 2.2 bcfd over the last five days to a preliminary 11-week low of 101.7 bcfd on Thursday. Analysts, however, noted that preliminary data was often revised later in the day.
Meteorologists forecast weather across the U.S. would remain mostly near normal through Sept. 9 before turning warmer than normal in the Sept. 10-20 period. Energy traders, however, noted that warmer-than-normal weather in mid-September would only average around 75 degrees Fahrenheit (23.9 degrees Celsius), down from an average of 79 F (26.1 C) in mid-August.
LSEG forecast average gas demand in the Lower 48, including exports, will fall from 102.5 bcfd this week to 100.5 bcfd next week. The forecast for next week was lower than LSEG’s outlook on Wednesday.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 13.2 bcfd so far in September, up from 12.9 bcfd in August. That compares with a monthly record high of 14.7 bcfd in December 2023. On a daily basis, LNG feedgas was on track to rise to a three-month high of 13.3 bcfd on Thursday.
Looking ahead, Berkshire Hathaway Energy’s 0.8-bcfd Cove Point LNG export plant in Maryland will likely shut for about three weeks of routine annual maintenance around Sept. 20, according to the plant’s history and notices to customers.
(Reporting by Scott DiSavino; editing by Jonathan Oatis)