US natural gas futures slid about 3% to a two-week low on Wednesday on forecasts for the weather to become less hot over the next two weeks.
Limiting those losses, however, were forecasts for more gas demand over the next two weeks than previously expected, a drop in daily output and an increase in the amount of gas flowing to liquefied natural gas (LNG) export plants.
Front-month gas futures for October delivery on the New York Mercantile Exchange fell 7.8 cents, or 3.0%, to $2.504 per million British thermal units (mmBtu) at 9:30 a.m. EDT (1330 GMT), putting the contract on track for its lowest close since Aug. 23.
That also put the front-month on track to decline for a fourth day for the first time since mid July.
In Texas, the state’s grid operator, the Electric Reliability Council of Texas (ERCOT), issued a Weather Watch from Sept. 6-8 due to forecast higher temperatures, higher electrical demand, and the potential for lower reserves. ERCOT said there is currently enough capacity to meet forecast demand and it expects grid conditions to remain normal.
ERCOT said it expects to set a new September peak demand record every weekday this week. The grid operator, however, expects those peaks to remain below its all-time high of 85,435 megawatts on Aug. 10.
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.
Supply and demand
Financial firm LSEG said average gas output in the lower 48 US states slid to 101.9 billion cubic feet per day (bcfd) so far in September from 102.2 bcfd in August and a record 102.3 bcfd in May.
On a daily basis, however, output was on track to fall about 2.7 bcfd to a preliminary five-month low of 99.6 bcfd on Wednesday. That would be the biggest one-day drop in output since mid June, but traders noted preliminary data is often revised later in the day.
Even though the weather in the lower 48 US states will be less hot than previously expected over the next two weeks, meteorologists forecast it will remain mostly hotter than normal through at least Sept. 21.
LSEG forecast US gas demand, including exports, will hold around 101.2 bcfd this week and next. Those forecasts were higher than LSEG’s outlook on Tuesday.
Gas flows to the seven big US LNG export plants rose to an average of 12.8 bcfd so far in September from 12.3 bcfd in August. That compares with a monthly record of 14.0 bcfd in April.
The US 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 US exports due to supply disruptions and sanctions linked to Russia’s war in Ukraine.
Gas was trading around $11 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $13 at the Japan Korea Marker (JKM) in Asia.
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