HomeNewsU.S. natgas prices down 3% as low LNG feedgas offsets impact of extreme heat

U.S. natgas prices down 3% as low LNG feedgas offsets impact of extreme heat

7/12/2023

(Reuters) - U.S. natural gas futures slid about 3% on Wednesday as maintenance work limits the amount of gas flowing to the country's liquefied natural gas (LNG) export plants.

That price decline occurred despite another daily drop in output and forecasts for hotter-than-normal weather to continue through late July, especially in Texas.

The Electric Reliability Council of Texas (ERCOT), the state's power grid operator, projected electricity use would reach record highs on Wednesday and Thursday as homes and businesses crank up air conditioners to escape the latest heatwave. The current record was hit on June 27.

Extreme heat boosts the amount of gas generators have to burn 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%), according to federal energy data.

Front-month gas futures for August delivery on the New York Mercantile Exchange were down 7.7 cents, or 2.8%, to $2.654 per million British thermal units (mmBtu) at 9:00 a.m. EDT (1300 GMT). On Tuesday, the contract closed at its highest level since June 30.

A lack of big price moves in recent weeks has cut historic or actual 30-day close-to-close futures volatility to 55.7%, the lowest level since April 2022 for a second day in a row. 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.

Historic volatility has averaged 85.2% so far this year, a 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 U.S. Lower 48 states has risen to 102.0 billion cubic feet per day (bcfd) so far in July, up from 101.1 bcfd in June. That is on track to top the monthly record high of 101.9 bcfd in May.

On a daily basis, however, output fell about 3.3 bcfd over the past five days to a preliminary three-week low of 99.5 bcfd on Wednesday due mostly to declines in North Dakota, Pennsylvania and Texas. Traders, however, noted preliminary data is often revised later in the day.

Meteorologists forecast the weather in the Lower 48 states would remain hotter than normal through at least July 26.

 With hotter weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 100.1 bcfd this week to 105.7 bcfd next week.

Gas flows to the seven big U.S. LNG export plants have risen to an average of 12.9 bcfd so far in July from 11.6 bcfd in June. But that is still well below the monthly record of 14.0 bcfd in April due to ongoing maintenance at several facilities, including Cheniere Energy Inc's Sabine Pass in Louisiana and Corpus Christi in Texas.

The U.S. 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 U.S. exports due to supply disruptions and sanctions linked to Russia's war in Ukraine.

Gas was trading around $9 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $12 at the Japan Korea Marker (JKM) in Asia. Those prices, however, were down about 60% so far this year after hitting record highs in 2022.

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