U.S. natural gas futures eased about 1% on Monday to a fresh 12-week low as producers keep pulling more gas out of the ground.
That small price decline came despite forecasts of record-breaking heat later this week, that could boost the amount of gas power generators burn to an all-time high.
At the same time, the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants hit a seven-week high over the weekend with the return of all three liquefaction trains at Freeport LNG in Texas, after it shut for Hurricane Beryl in early July.
Analysts said the combination of higher gas use by power generators and LNG export plants could cause utilities to take the unusual step of pulling gas out of storage during a week in August for the first time since 2006.
There was currently about 17% more gas in storage than normal for this time of year.
Storage builds have been mostly smaller than usual in recent weeks, because several producers cut output earlier in the year after futures prices dropped to 3-1/2-year lows in February and March.
Higher prices in April and May, however, prompted some drillers, including EQT EQT.N and Chesapeake Energy CHK.O, to boost output.
But with prices down about 23% so far in July, some analysts think producers could reduce drilling activities again.
On its last day as the front-month, gas futures NGc1 for August delivery on the New York Mercantile Exchange fell 1.6 cents, or 0.8%, to $1.990 per million British thermal units (mmBtu) by 9:45 a.m. EDT (1345 GMT), putting the contract on track for its lowest close since May 1 for a second day in a row.
That also put the front-month down for a fifth day and kept it in oversold territory for a second day in a row.
The September contract, which will soon be the front-month, held steady at around $2.04 per mmBtu, allowing its premium over August to rise to a record high for a second day.
SUPPLY AND DEMAND
Financial firm LSEG said gas output in the Lower 48 states rose to an average of 102.4 billion cubic feet per day (bcfd) so far in July, up from 100.2 bcfd in June and a 17-month low of 99.4 bcfd in May. U.S. output hit a monthly record of 105.5 bcfd in December 2023.
Meteorologists forecast temperatures across the Lower 48 states will average 83.5 degrees Fahrenheit (28.6 Celsius) on Aug. 1 and 83.9 F on Aug. 2, according to data from LSEG.
That would top the current record high average temperature of 83.0 F set on July 20, 2022, when power demand peaked at an all-time high of 742,600 megawatts, according to LSEG and federal energy data.
To keep air conditioners humming during that record heat, LSEG forecast power generators would burn about 54.8 bcfd of gas on Aug. 2, which would top the current all-time high of 54.1 bcfd reached on July 9 when generators had to burn more gas due to a lack of wind power.
But the amount of power generated by wind was on track to rise from 4% last week to around 10% this week.
With more heat coming, LSEG forecast average gas demand in the Lower 48, including exports, will rise from 105.6 bcfd this week to 111.7 bcfd next week.
On a daily basis, LNG feedgas rose to a preliminary seven-week high of 13.3 bcfd on Sunday with the return of the 2.1-bcfd Freeport.
Source: Reuters (Reporting by Scott DiSavino; Editing by David Holmes)