U.S. natural gas futures slid about 2% on forecasts of less demand this week and less hot weather over the next two weeks than previously expected. Even though the weather will be less hot than previously forecast, it will still be hotter than normal through mid-August, especially in Texas.
Power demand in Texas hit a record high on July 18 and will likely break that record again next week as homes and businesses keep their air conditioners cranked up to escape a lingering heatwave, according to forecasts by the Electric Reliability Council of Texas (ERCOT), the state’s power grid operator.
Extreme heat boosts the amount of gas burned to produce power for cooling, especially in Texas, which gets most of its electricity from gas-fired plants. In 2022, about 49% of the state’s power came from gas-fired plants, with most of the rest coming from wind (22%), coal (16%), nuclear (8%) and solar (4%), federal energy data showed.
On its second to last day as the front-month, gas futures for August delivery on the New York Mercantile Exchange fell 4 cents, or 1.5%, to $2.690 per million British thermal units (mmBtu) at 9:06 a.m. EDT (1306 GMT).
Futures for September, which will soon be the front-month, were down about 5 cents to $2.70 per mmBtu.
SUPPLY AND DEMAND
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 101.5 billion cubic feet per day (bcfd) so far in July, from 101.0 bcfd in June. That compares with a monthly record of 101.8 bcfd in May.
On a daily basis, however, output was on track to drop by about 2.4 bcfd over the past three days to a preliminary four-week low of 99.7 bcfd on Wednesday due mostly to declines in Ohio, West Virginia and Colorado. Analysts have noted that preliminary data is often revised later in the day.
Meteorologists forecast the weather in the Lower 48 states will remain hotter than normal through at least Aug. 10.
With hotter weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 105.3 bcfd this week to 107.0 bcfd next week. The forecasts for this week was lower than Refinitiv’s outlook on Tuesday.
Gas flows to the seven big U.S. LNG export plants rose to an average of 12.8 bcfd so far in July from 11.6 bcfd in June. That is still well below the monthly record of 14.0 bcfd in April due to ongoing maintenance at several facilities, including Freeport LNG in Texas and Cheniere Energy’s Sabine Pass in Louisiana.
The U.S. is on track to become the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar, as much higher global prices continue to feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s war in Ukraine.
Gas was trading around $10 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $11 at the Japan Korea Marker (JKM) in Asia.
That puts global gas prices down about 60% so far this year after hitting record highs in 2022 due to mild winter temperatures that left northern hemisphere storage at above-normal levels. U.S. gas futures are down about 40% so far this year.
In 2022, roughly 69%, or 7.2 bcfd, of U.S. LNG exports went to Europe as shippers diverted cargoes from Asia to get higher prices. In 2021, when prices in Asia were higher, just 35%, or about 3.3 bcfd, of U.S. LNG exports went to Europe.
With the return of higher gas prices in Asia this year, analysts said they expect U.S. LNG exports to Asia will increase. But that has not happened yet. Just 19%, or 2.1 bcfd, of U.S. LNG exports went to Asia during the first half of 2023, while 70%, or 8.0 bcfd, went to Europe.
(Reporting by Scott DiSavino; Editing by Conor Humphries)
