US natural gas futures jump five percent on rising demand

US natural gas futures jumped over 5 percent on Monday on forecasts demand will increase over the next two weeks due to rising air conditioning use and some worries a tropical storm could disrupt production along the Texas Gulf Coast. A tropical disturbance in the Gulf of Mexico has a 90 percent chance of strengthening into a tropical storm over the next 48 hours as it moves toward the Texas Gulf Coast, according to the US National Hurricane Center.
With much of the nation's production now coming from shale fields located far from the nation's coasts, traders noted storms in the Gulf of Mexico no longer pose as much of a threat to the nation's gas production as they did a decade ago. Drillers currently only get about 4 percent of the nation's total gas from the Gulf of Mexico, according to federal data. That is down from about 17 percent a decade ago.
"There could be more of an impact on onshore demand due to possible flooding in the Houston area than on production," said Tim Evans, energy futures specialist at Citi Futures, referring to the potential for tropical activity in the Gulf. Front-month gas futures on the New York Mercantile Exchange closed up 13.9 cents at $2.889 per million British thermal units.
That increase pushed the premium of gas futures over coal futures over $1.10 per mmBtu for the first time since January, making it more likely some generators will burn coal instead of gas. In an effort to remain competitive with relatively low gas prices, coal futures fell to their lowest level since 2007. Gas futures meanwhile have traded at their lowest level since 2012 since the beginning of the year.
With heat building in the desert Southwest, average next-day power prices at Palo Verde in the Desert Southwest and SP-15 in Southern California climbed to the highest levels since at least January on the Intercontinental Exchange. The Global Forecast System weather model for the lower 48 US states called for temperatures to remain above normal for the next two weeks, with 186 population-weighted cooling degree days. That was the same as Friday and compared with a 30-year norm of 160 CDDs. Thomson Reuters Analytics forecast consumption in the lower 48 would average 59.4 billion cubic feet per day over the next two weeks, compared with Friday's forecast of 58.8 bcfd and a 30-year norm of 54.0 bcfd.