U.S. natural gas futures rose about 2% to a one-week high on Wednesday on forecasts for warmer than normal weather in mid June that should boost air conditioning demand.
That price increase came despite record U.S. output, lower gas flows to liquefied natural gas (LNG) export plants due to maintenance and rising gas exports from Canada after wildfires caused some energy firms to shut-in production earlier in the month.
Front-month gas futures for July delivery on the New York Mercantile Exchange rose 3.5 cents, or 1.5%, to $2.362 per million British thermal units (mmBtu) at 8:57 a.m. EDT (1257 GMT), putting the contract on track for its highest close since May 24.
Despite price gain on Wednesday, the front-month was still on track to decline about 2% in May after gaining about 9% in April.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 101.7 billion cubic feet per day (bcfd) so far in May, which would top April’s monthly record of 101.4 bcfd.
The amount of gas flowing from Canada to the U.S. was on track to jump to a 10-week high of 8.54 bcfd on Wednesday from 7.81 bcfd on Tuesday, according to Refinitiv.
So far this month, Canadian exports have dropped from 8.52 bcfd on May 4 to a 25-month low of 6.41 bcfd on May 17 as wildfires in Alberta caused energy firms to cut oil and gas production. Canadian exports rose to 8.12 bcfd on May 23 after firefighters made significant progress controlling the blazes.
That compares with average Canada-to-U.S. exports of 8.3 bcfd since the start of the year and 9.0 bcfd in 2022. About 8% of the gas consumed in, or exported from, the U.S. comes from Canada.
Meteorologists projected the weather in the Lower 48 states would remain mostly near normal from May 31-June 10 before turning warmer than normal from June 11-15.
Refinitiv forecast U.S. gas demand, including exports, would rise from 89.5 bcfd this week to 92.7 bcfd next week as the weather turns seasonally warmer. Those forecasts were similar to Refinitiv’s forecast on Tuesday.
Gas flows to the seven big U.S. LNG export plants fell from a record 14.0 bcfd in April to an average of 13.0 bcfd so far in May due to maintenance work at several plants.
Last month’s record flows were higher than the 13.8 bcfd of gas the seven big plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG.
GLOBAL GAS PRICE COLLAPSE
Some analysts have questioned whether this year’s gas price collapse in Europe and Asia could force U.S. exporters to cancel LNG cargoes this summer after mostly mild weather over the winter left massive amounts of gas in storage. In 2020, at least 175 LNG shipments were canceled due to weak demand.
But for now, most analysts say energy security concerns following Russia’s invasion of Ukraine in February 2022 should keep global gas prices high enough to sustain record U.S. LNG exports in 2023.
Gas was trading near a 25-month low of around $8 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and near a 24-month low of $9 at the Japan Korea Marker (JKM) in Asia. That put TTF down about 65% and JKM down about 68% so far this year.
U.S. gas futures, which were down about 48% so far this year, lag far behind global prices because the United States is the world’s top producer with all the fuel it needs for domestic use, while capacity constraints prevent the country from exporting more LNG.
(Reporting by Scott DiSavino, Editing by Nick Zieminski)