NEW YORK: US natural gas futures erased earlier losses and rose about 1% to a five-week high on Thursday as an extreme heat wave caused last week’s storage build to be smaller than expected.
That gas price increase came despite a big drop in oil futures and an ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas that has left more gas in the United States for utilities to refill low stockpiles.
The US Energy Information Administration (EIA) said utilities added just 32 billion cubic feet (bcf) of gas to storage during the week ended July 15.
That was much less than the 47-bcf build analysts forecast in a Reuters poll and compares with an increase of 50 bcf in the same week last year and a five-year (2017-2021) average increase of 41 bcf. Analysts said that small build occurred because power generators burned lots of gas to meet record demand and keep air conditioners humming during the heat wave, which is still blanketing much of the country.
In New England, that heat boosted next-day power for Thursday by 29% to $258 per megawatt hour, its highest since January 2018, while spot gas soared over 200% to $29.35 per million British thermal unit (mmBtu), its highest since January 2022.
With gas prices that high, traders said it makes sense for some New England generators to burn oil instead of gas to produce electricity.
Freeport, the second-biggest US LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. Freeport LNG estimated the facility will return to partial service in October. Some analysts expect the outage to last longer.
Freeport started taking in very small amounts of pipeline gas this week.
After soaring 10% on Wednesday, front-month gas futures rose 10.8 cents, or 1.4%, on Thursday to $8.115 per million British thermal units (mmBtu) at 10:53 a.m. EDT (1453 GMT), putting the contract on track for its highest close since June 13 for a second day in a row.
Oil prices fell by more than 5% earlier in the session after higher US gasoline stockpiles heightened concerns about falling demand.
So far this year, the gas front-month is up 117% as much higher prices in Europe and Asia keep demand for US LNG exports strong, especially since Russia’s invasion of Ukraine.
Gas was trading around $44 per mmBtu in Europe and $38 in Asia.
With the shutdown of Nord Stream 1 for maintenance from July 11-21, Russian gas exports have held around 1.4 bcfd on the three main lines into Germany: Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route.
That is down from an average of 3.7 bcfd in the month before Nord Stream shut and an average of 9.4 bcfd in July 2021.
Russia started pumping gas through Nord Stream on Thursday, allaying some of Europe’s immediate supply fears but not removing the threat of rationing to cope with potential winter shortages.
Data provider Refinitiv said average gas output in the US Lower 48 states rose to 96.1 bcfd so far in July from 95.3 bcfd in June. That compares with a monthly record high of 96.1 bcfd in December 2021.
On a daily basis, however, output was on track to drop from a six-month high of 97.3 bcfd on Monday to a preliminary one-week low of 94.7 bcfd on Thursday. Preliminary data is often revised later in the day.
Refinitiv projected average US gas demand including exports would slide from 101.1 bcfd this week to 99.7 bcfd next week as extreme heat starts to ease in some parts of the country. The forecast for next week was lower than Refinitiv’s outlook on Wednesday.