US natural gas futures jumped over 3% to a fresh seven-year high on Wednesday as soaring global gas prices kept demand for US exports high and as almost half of gas production in the Gulf of Mexico remains shut-in from Hurricane Ida damage over two weeks ago.
Traders noted US prices gained despite forecasts for less hot weather and lower demand over the next two weeks than previously expected.
Much of that expected demand decline came from the shutdown of the Freeport LNG export plant in Texas during Tropical Storm Nicholas on Tuesday and upcoming planned maintenance at Berkshire Hathaway Energy's Cove Point LNG export plant in Maryland that could start early next week. Freeport was expected to take on more gas on Wednesday, which traders said was a sign that the plant was returning to service.
Since Hurricane Ida entered the Gulf of Mexico in late August, gas prices have soared over 35% due to the slow return of production after Ida, hotter than normal US weather and high air conditioning demand this summer, record global gas prices and lower than normal gas inventories in the United States and Europe ahead of the winter heating season, when demand for the fuel peaks.
Front-month gas futures rose 17.6 cents, or 3.4%, to $5.436 per million British thermal units (mmBtu) at 8:45 a.m. EDT (1245 GMT), putting the contract on track for its highest close since February 2014 for a third day in a row. That also keeps the front-month in overbought territory for a sixth consecutive day.
Soaring gas prices in recent weeks helped cut the premium of oil futures over gas to its lowest since November 2020. Over the last several years, that premium has prompted US energy firms to focus most of their drilling activity on finding more oil instead of gas because crude was the more valuable commodity.
The oil-to-gas ratio, or the level at which oil trades compared with gas, fell to 13-to-1. That is below the 21 times oil has traded over gas so far in 2021 and compares with crude's average premium of 19 times over gas in 2020 and a five-year average (2015-2019) of 20 times over gas. Crude, however, remains more valuable than gas. On an energy equivalent basis, oil should trade only six times over gas.
Data provider Refinitiv said gas output in the US Lower 48 states fell to an average of 90.2 billion cubic feet per day (bcfd) so far in September, from 92.0 bcfd in August, due mostly to Ida-related losses along the Gulf Coast. That compares with a monthly record of 95.4 bcfd in November 2019.
About 1.1 bcfd, or 48%, of gas production in the US Gulf of Mexico remains shut in since Ida, according to government data.
Refinitiv projected average US gas demand, including exports, would fall from 86.7 bcfd this week to 85.1 bcfd next week as air conditioning use and LNG exports decline. Those forecasts were lower than Refinitiv expected on Tuesday.
Despite the Freeport outage on Tuesday, the amount of gas flowing to US LNG export plants has averaged more so far in September at 10.7 bcfd than in August's average of 10.5 bcfd, as buyers around the world keep purchasing all the super-chilled gas the United States can produce. That compares with a monthly record of 11.5 bcfd in April.
Gas in Europe and Asia was trading near $25 and $19 per mmBtu, respectively, compared with just over $5 for the US fuel. Gas at the Title Transfer Facility (TTF) in the Netherlands, the European benchmark, was at a record high.