U.S. natural gas futures held near a one-week low on Thursday on near record output and forecasts for less demand over the next two weeks than previously expected.

That lack of price movement came even though the amount of gas flowing to the nation’s liquefied natural gas (LNG) export plants was rising and on forecasts the weather in the U.S. Lower 48 states would remain mostly hotter-than-normal through late July, especially in Texas.

In Texas, the Electric Reliability Council of Texas (ERCOT), the state’s power grid operator, projected another heat wave next week would boost electric use to fresh record highs on Monday-Thursday, July 10-13.

Extreme heat boosts the amount of gas generators burn 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.

Front-month gas futures NGc1 for August delivery on the New York Mercantile Exchange fell 0.6 cents, or 0.2%, to $2.651 per million British thermal units at 9:41 a.m. EDT (1341 GMT), putting the contract on track for its lowest close June 28 for a second day in a row.

That also put the front-month down for a third day in a row for the first time since late May.

The lack of big price moves in recent weeks has cut historic or actual 30-day close-to-close futures volatility to just 60.0%, 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 86.0%. That compares with an annual record high of 92.8% in 2022 and a five-year (2018-2022) average of 57.9%.

SUPPLY AND DEMAND

Data provider Refinitiv said average gas output in the Lower 48 states rose to 101.9 billion cubic feet per day (bcfd) so far in July, up from 100.9 bcfd in June, putting production on track to match the monthly record of 101.9 bcfd in May.

Meteorologists forecast the weather in the Lower 48 states would remain near-normal until July 10 before turning hotter-than-normal through at least July 21.

With hotter weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 103.0 bcfd this week to 103.3 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Wednesday.

Gas flows to the seven big U.S. LNG export plants rose to an average of 13.2 bcfd so far in July, up from 11.5 bcfd in June. That, however, is still well below the monthly record of 14.0 bcfd in April due to maintenance at several facilities, including Cheniere Energy Inc’s LNG.A Sabine Pass in Louisiana.

The record flows in April exceeded the 13.8 bcfd of gas the seven big plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG.
Source: Reuters