U.S. natural gas futures jumped about 6% onThursday, on track to close at a two-month high,on a bigger-than-expected storage withdrawal last week and forecasts extreme cold in coming days will boost gas demand to record highs.

The U.S. Energy Information Administration (EIA) said utilities pulled 140 billion cubic feet (bcf) of gas out of storage during the week ended Jan. 5.

That was more than the 119-bcf withdrawal that analysts forecast in a Reuters poll and compares with a decreaseof 23 bcf in the same week last year and a five-year (2019-2023) average decline of 89 bcf.

Meteorologists forecast temperatures across most of the Lower 48 states over this weekend willdrop to well below normal, especially in the middle of the country. That frigid weather should boost gas demand to record highs and has already put power and gas prices on track to hit their highest levels since December 2022.

With the cold already freezing the Pacific Northwest, next-day power prices at the Mid-Columbia hub EL-PK-MIDC-SNL soared by 741% to a 16-month high of $850 per megawatt hour (MWh) for Thursday.

The cold has also started to limitgas supplies by freezing oil and gas wells, pipes and other equipment in the Rockies (Colorado and Wyoming) and Bakken shale (North Dakota).

In February 2021, massive”freeze-offs” of wellscut gas supplies for heating and power generation in Texas and other U.S. Central states, forcing rotating power outages because there was not enough electricity available with so many power plants shut due to a lack of fuel and other problems. In December 2022 it happened inAppalachia.

Front-month gas futures NGc1 for February delivery on the New York Mercantile Exchange rose 16.6 cents, or 5.5%, to $3.205 per million British thermal units (mmBtu) at 11:28 a.m. EST (1628 GMT), putting the contract on track for its highest close since Nov. 6.

In other news, Chesapeake Energy CHK.O said it would buy smaller rival Southwestern Energy SWN.N in an all-stock transaction valued at $7.4 billion, a deal that would enable the second-largest U.S. gas producer to take the top spot from current leader EQT EQT.N.

SUPPLY AND DEMAND

Financial company LSEG said average gas output in the Lower 48 states fell to 107.1 billion cubic feet per day (bcfd) so far in January, down from a monthly record of 108.5 bcfd in December.

Daily output was on track to drop by 3.7 bcfd over the last four days to a preliminary 10-week low of 104.5 bcfd on Thursday. Those output losses were small compared with losses of 19.6 bcfd during Winter Storm Elliott in 2022 and 20.4 bcfd during the February freeze in 2021.

Meteorologists projected U.S. weather would switch from mostly warmer than normal now to colder than normal from Jan. 13-21 before turning back to mostly warmer than normal from Jan. 22-26.

As heating demand soars, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would jump from 136.5 bcfd this week to 160.5 bcfd next week. Those forecasts were lower than LSEG’s outlook on Wednesday.

On a daily basis, total U.S. gas demand, including exports, was on track to reach 162.5 bcfd on Jan. 14, 167.6 bcfd on Jan. 15 and 175.4 bcfd on Jan. 16, according to LSEG.

Traders noted it would be unusual for gas use to hit a record on Jan. 15 since it is the Martin Luther King Day U.S. holiday when many businesses and government offices will be shut for a long weekend.

Those daily demand forecasts would tie and then top the current all-time high of 162.5 bcfd set on Dec. 23, 2022, during a winter storm known as Elliott, according to federal energy data from S&P Global Commodities Insights.
Source: Reuters (Reporting by Scott DiSavino; Editing by Emelia Sithole-Matarise and Barbara Lewis)