U.S. natural gas futures climbed about 2% on Friday on forecasts for the weather to remain hotter-than-normal through late July, especially in Texas, and rising feedgas to the nation’s liquefied natural gas (LNG) export plants.

That price increase came even though U.S. drillers were pulling record amounts of gas out of the ground and a bigger-than-expected storage build last week.

The Electric Reliability Council of Texas (ERCOT), the state’s power grid operator, projected another heatwave next week would boost electricity use to a record high on Wednesday, July 12.

Generators burn gas to produce power for air conditioning, 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%), according to federal energy data.

The U.S. Energy Information Administration (EIA) said utilities added 68 billion cubic feet (bcf) of gas into storage during the week ended June 30.

That was bigger than the 64-bcf build analysts forecast in a Reuters poll and compares with an increase of 63 bcf in the same week last year and a five-year (2018-2022) average increase of 64 bcf. The 68-bcf build was the implied flow before a 4-bcf reclassification from base gas to working gas in the Nonsalt South Central region.

Front-month gas futures NGc1 for August delivery on the New York Mercantile Exchange rose 4.4 cents, or 1.7%, to $2.653 per million British thermal units (mmBtu) at 10:44 a.m. EDT (1444 GMT). On Thursday, the contract closed at its lowest since June 28 for a second day in a row.

For the week, the contract was down about 5% after rising around 3% last week. That would be the front-month’s first weekly decline in five weeks.

The lack of big price moves in recent weeks has cut historic or actual 30-day close-to-close futures volatility to 59.4%, its lowest since April 2022. On a daily basis, historic volatility hit a record high of 177.7% in February 2022 and a record low of 7.3% in June 1991.

So far this year, historic volatility has averaged 85.8%. That compares with an annual record high of 92.8% in 2022 and a five-year (2018-2022) average of 57.9%.

Oil majors Shell PLCSHEL.L and Exxon Mobil Corp both said the drop in gas prices around the world would “significantly lower” their second quarter earnings.

After hitting record highs in 2022, gas prices so far this year have plunged about 55% at the Dutch Title Transfer Facility (TTF) TRNLTTFMc1 benchmark in Europe, 59% at the Japan Korea Marker (JKM) JKMc1 benchmark in Asia and 41% at the U.S. Henry Hub NGc1 benchmark in Louisiana. NG/EU

SUPPLY AND DEMAND

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 102.2 billion cubic feet per day (bcfd) so far in July, up from 100.9 bcfd in June and on track to top the monthly record high of 101.9 bcfd in May. That production increase came even though drillers have cut the number of oil and gas rigs operating for in a row.

Meteorologists forecast weather in the Lower 48 states would remain near normal until July 10 before turning hotter-than-normal through at least July 22.

With higher temperatures coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 103.1 bcfd this week and next to 106.9 bcfd in two weeks. The forecasts for this week and next were similar to Refinitiv’s outlook on Thursday.

Gas flows to the seven big U.S. LNG export plants rose to an average of 13.1 bcfd so far in July from 11.5 bcfd in June. That was still well below the monthly record of 14.0 bcfd in April due to ongoing maintenance at several facilities, including Cheniere Energy Inc’s LNG.A Sabine Pass in Louisiana and Corpus Christi in Texas.
Source: Reuters (Reporting by Scott DiSavino; Editing by Emelia Sithole-Matarise and Barbara Lewis)