U.S. natural gas futures moved higher on Wednesday as forecasts for hotter-than-normal weather drove up the amount of gas expected to be burned by power plants, particularly in Texas’ natural gas-reliant power grid.
Front-month gas futures for August delivery on the New York Mercantile Exchange traded 4.8 cents higher, or 1.8%, to $2.76 per million British thermal units at 09:32 a.m. EDT.
“We’re seeing support in the natural gas markets from some heat on the maps coming back to Texas next week,” said Gary Cunningham, director of market research at Tradition Energy.
In Texas, power use remained high and reached record levels last week as a heat wave continues to bake the state, according to the state’s grid operator, the Electric Reliability Council of Texas (ERCOT).
Data provider Refinitiv estimated 238 cooling degree days (CDDs) over the next two weeks in the lower 48 U.S. states, compared to the 30-year normal for this time of year of 199 CDDs.
CDDs measure the number of degrees a day’s average temperature is above 65 Fahrenheit (18 Celsius) and provide a snapshot into likely demand for cooling.
Extreme heat boosts the amount of gas generators burn to produce power for air conditioning, especially in Texas, which gets most of its electricity from gas-fired plants.
Data provider Refinitiv saw natural gas demand from U.S. power plants jumping to 45.6 billion cubic feet per day (bcfd) this week, compared to 40.6 bcfd last week.
“On the supply side, US gas production could begin to decline by fall given a drop in total U.S. rig counts to a level approximately 10% below that of a year ago,” analysts at energy consulting firm Ritterbusch and Associates said in a note.
“However, sustaining the recent advance could be challenged by latest updates to the short-term temperature views favoring some cooling trends across a broad portion of the nation’s mid-continent that could serve to offset continued hot trends across much of the southern regions.”
Refinitiv said average gas output in the U.S. Lower 48 states was at 101.9 bcfd so far in July compared with a record 102.5 bcfd in May. Last week, output stood at 100.6 bcfd.
U.S. energy firms this week cut the number of oil and natural gas rigs operating for a ninth week in a row for the first time since July 2020, energy services firm Baker Hughes Co said in its closely followed report last week.
“That gave the market the support it needed to just continue to hold again in the fair value band around the $2.75 mark,” Cunningham said.
Refinitiv forecast U.S. gas demand, including exports, would rise from 103.7 bcfd this week to 104.2 bcfd next week as the weather turns hotter.
U.S. exports of liquefied natural gas fell 10% in June to 6.82 million tonnes (MT), from 7.58 MT the previous month, as plant maintenance curbed output and European demand slid, according to preliminary data from Refinitiv.
British and Dutch gas prices were mixed due to rises in Norwegian pipeline supplies after maintenance, slower arrivals of liquefied natural gas (LNG) and lacklustre demand.
(Reporting by Deep Vakil in Bengaluru; Editing by Christina Fincher)
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