US natural gas hit 7-year high on Gulf storm worries, soaring global prices

US natural gas futures climbed to a fresh seven-year high on Tuesday on worries Tropical Storm Nicholas could delay the already slow return of production in the Gulf of Mexico and as record global gas prices keep demand for US exports high.

Prices rose despite forecasts for less hot weather and lower demand over the next two weeks than previously expected.

Traders noted storms in the Gulf of Mexico, like Nicholas and Hurricane Ida, could boost gas prices by cutting Gulf Coast production. But, they can also reduce demand and cut prices by disrupting liquefied natural gas (LNG) exports and knocking out power to homes and businesses, especially the petrochemical facilities that use lots of gas.

The center of Nicholas was located about 15 miles (25 kilometers) south-southwest of Houston and could cause life-threatening flash floods across the Deep South during the next couple of days, according to the US National Hurricane Center. The storm has already knocked out power to around 500,000 customers in Texas, but so far has not had much of an impact on the region's liquefied natural gas (LNG) and nuclear power plants.

US natural gas futures climb to 7-year high on rising demand forecasts

Front-month gas futures rose 4.9 cents, or 0.9%, to $5.280 per million British thermal units (mmBtu) at 9:21 a.m. EDT (1321 GMT), putting the contract on track for its highest close since February 2014 for a second day in a row.

Since Hurricane Ida entered the Gulf of Mexico in late August, gas prices have soared over 32% due mostly to the slow return of production after the storm. Traders said gas prices have also been supported by hotter than normal US weather and high air conditioning demand this summer, record global gas prices, and lower than normal gas inventories in the United States and Europe ahead of the winter heating season when demand for the fuel peaks.

Data provider Refinitiv said gas output in the US Lower 48 states fell to an average of 90.1 billion cubic feet per day (bcfd) so far in September, from 92.0 bcfd in August, due mostly to Ida-related losses along the Gulf Coast. That compares with a monthly record of 95.4 bcfd in November 2019.

About 1.2 bcfd, or 52%, of gas production in the US Gulf of Mexico remains shut-in since Ida, according to government data.

Refinitiv projected average US gas demand, including exports, would rise from 86.8 bcfd this week to 87.1 bcfd next week as heating demand picks up in some regions. Those forecasts, however, were lower than Refinitiv expected on Monday.

The amount of gas flowing to US LNG export plants rose to an average of 10.9 bcfd so far in September, from 10.5 bcfd in August, as buyers around the world keep purchasing all the super-chilled gas the United States can produce. That compares with a monthly record of 11.5 bcfd in April.

Gas in Europe and Asia was trading around $23 and $19 per mmBtu, respectively, compared with just $5 for the US fuel. Gas at the Title Transfer Facility (TTF) in the Netherlands, the European benchmark, was at a record high.