U.S. natgas futures fall to near 3-yr low as oil prices plunge

The move lower came despite a decline in production and forecasts that power demand in Texas would rise to a record high over the next week as a heat wave bakes the state.

Front-month gas futures for September delivery on the New York Mercantile Exchange fell 2.8 cents, or 1.3%, to settle at $2.083 per million British thermal units (mmBtu). That leaves the contract about a penny over Monday’s $2.070 close, which was the lowest settle since May 26, 2016. U.S. crude futures closed at their lowest since January.

“(Gas) prices have been unable to stage a convincing recovery after their recent tumble to three-year lows, but they have also been hesitant to completely give up and plunge below $2,” Daniel Myers, market analyst at Gelber & Associates in Houston, said in a report.

Analysts said gas futures have traded near multiyear lows since May because record production and mild spring weather allowed utilities to inject huge amounts of gas into storage, shrinking a massive inventory deficit and removing any concern about shortages in the winter even though power demand and LNG exports are on track to hit all-time highs this year.

The amount of gas in inventory has remained below the five-year average since September 2017. It fell as low as 33% below that average in March 2019. But with production expected to keep growing, analysts said stockpiles should reach a near-normal 3.7 trillion cubic feet (tcf) by the end of the summer injection season on Oct. 31.

Data provider Refinitiv said gas production in the Lower 48 U.S. states dropped to 90.8 billion cubic feet per day (bcfd) on Tuesday due mostly to small declines in Texas and Louisiana, down from a record high 91.7 bcfd on Monday.

Output hit all-time highs earlier this week even though a section of Enbridge Inc’s Texas Eastern pipe in Kentucky is expected to remain out of service through at least Aug. 12 following an explosion on Thursday that killed one person and is restricting gas flows from the Marcellus and Utica shale to the Gulf Coast.

Despite the Texas Eastern shutdown, output in the Appalachia region of Pennsylvania, Ohio and West Virginia rose to a record high 32.7 bcfd on Monday, according to Refinitiv.

Refinitiv said the amount of gas flowing to U.S. LNG export terminals eased to 4.1 bcfd on Tuesday from 4.3 bcfd on Monday. That puts LNG flows close to the four-month low hit on Sunday after Cheniere Energy Inc shut two units at Sabine Pass in Louisiana for maintenance and one at Corpus Christi in Texas as part of its commissioning.

With less hot weather expected through late August, Refinitiv forecast demand in the Lower 48 states would slide to 89.8 bcfd next week from 91.7 bcfd this week as power generators burn less gas to keep air conditioners running. That compares with Refinitiv’s forecasts on Monday of 90.1 bcfd for next week.

Some parts of the country, however, are still feeling the heat.

In Texas, next-day power prices almost doubled from $115.50 per megawatt hour (MWh) for Tuesday to a one-year high of $209.25 for Wednesday in the Ercot North hub on forecasts temperatures will hold near 100 degrees Fahrenheit (38 Celsius) in Houston over the next week.

That heat prompted the Electric Reliability Council of Texas (ERCOT), which operates the power grid for most of the state, to forecast demand would soar to a new record high of more than 74,200 megawatts (MW) on Aug. 12. The current all-time high is 73,473 MW set on July 19, 2018.

Analysts said utilities likely added a bigger-than-normal 59 billion cubic feet (bcf) of gas into storage during the week ended Aug. 2. That compares with an injection of 46 bcf during the same week last year and a five-year (2014-18) average build of 43 bcf for the period.

If correct, the increase would boost stockpiles to 2.693 tcf, 3.8% below the five-year average of 2.800 tcf for this time of year.