HOUSTON: US natural gas futures edged higher on Tuesday as hotter than normal weather kept air conditioning demand high, especially in Texas, offsetting pressure from rising output.
Front-month gas futures for September delivery on the New York Mercantile Exchange were up 1.9 cents, or 0.7%, to $2.74 per million British thermal units (mmBtu) at 10:07 a.m. EDT (1407 GMT).
Warmer than normal temperatures in the densely populated states, continued heat in Texas, and indications that LNG export facilities are ramping up in anticipation of higher winter demand - are all providing a more stable and supportive market for prices, said Gary Cunningham, director of market research at Tradition Energy.
“Especially when you layer on the fact that we’re seeing drilling CapEx cutbacks by several natural gas major players, we expect natural gas production to sort of plateau at just over 100 billion cubic feet a day through the end of the year and probably into early 2024.”
Power demand in Texas hit an all-time high last week and will likely break that record again this week as homes and businesses keep their air conditioners cranked up during the lingering heat wave, 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 from wind (22%), coal (16%), nuclear (8%) and solar (4%), federal energy data showed.
Meteorologists forecast the weather in the Lower 48 states will remain hotter than normal through at least Aug. 23.
Data provider Refinitiv forecast US gas demand, including exports, would rise from 101.8 billion cubic feet per day (bcfd) this week to 105.2 bcfd next week as power generators burn more of the fuel and exports rise.
Refinitiv said average gas output in the US lower 48 states was 102.1 bcfd so far in August, up from 101.8 bcfd in July. That compares with a monthly record of 102.2 bcfd in May.
Gas flows to the seven big US LNG export plants have fallen from an average of 12.7 bcfd in July to 12.2 bcfd so far in August due mostly to a reduction at Cheniere Energy’s Sabine Pass in Louisiana. 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 the war in Ukraine.
In 2022, roughly 69%, or 7.2 bcfd, of US 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 US LNG exports went to Europe.
With the return of higher gas prices in Asia this year, analysts said they expect US LNG exports to Asia will increase. But that has not happened yet. Just 19%, or 2.1 bcfd, of US LNG exports went to Asia during the first half of 2023, while 70%, or 8.0 bcfd, went to Europe.