U.S. natural gas futures edged up on Monday as the market focused more on forecasts for more demand over the next two weeks than previously expected as opposed to an increase in output to record levels.
Front-month gas futures for September delivery on the New York Mercantile Exchange rose 2.7 cents, or 1.3%, to $2.146 per million British thermal units (mmBtu) at 9:10 a.m. EDT (1310 GMT). That keeps the contract within 10 cents of the $2.070 close on Aug. 5, which was its lowest settle since May 26, 2016.
Analysts said gas futures have traded near multi-year 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 concerns about shortages this winter even though power demand and liquefied natural gas (LNG) exports are on track to hit all-time highs.
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.
Those bearish factors pushed gas speculators last week to boost their net short positions on the NYMEX and Intercontinental Exchange to the highest on record for a third week in a row, according to U.S. Commodity Futures Trading Commission (CFTC) data from Refinitiv going back to 2010.
But with front-month futures unable to break through the three-year low for months, the rate at which speculators added to those net shorts last week dropped to just 2,282 contracts compared with the addition of over 31,000 net shorts in each of the prior two weeks.
With the weather expected to warm next week, data provider Refinitiv projected demand in the lower 48 U.S. states would rise from an average of 90.5 bcfd this week to 91.6 billion cubic feet per day (bcfd) next week as more gas flows to LNG export terminals and power generators burn more of the fuel to meet rising air-conditioning use.
That is higher than Refinitiv’s forecast on Friday of 89.6 bcfd for this week and 90.1 bcfd for next week.
In early estimates, Refinitiv projected gas flows to LNG export terminals would rise from a near four-month low of 3.8 bcfd last week to a one-week high of 4.7 bcfd on Monday as a unit returns at Cheniere Energy Inc’s Corpus Christi plant in Texas.
LNG flows last week dropped after Cheniere shut two units at Sabine Pass in Louisiana for maintenance and one at Corpus as part of its commissioning.
Traders said they expect the amount of gas flowing to LNG terminals to increase over the next couple of weeks as the units at Sabine return and units at Freeport LNG’s Freeport plant in Texas and Kinder Morgan Inc’s Elba plant in Georgia start to enter service. The Oak Spirit LNG tanker, which is in the Gulf of Mexico, is heading toward the Freeport terminal, according to Refinitiv’s interactive map.
With moderate weather forecast this week in the Midwest and Northeast, spot gas prices for Monday at the Chicago Citygate and the Algonquin hub in New England fell to their lowest since May 2016 and November 2017, respectively.
In Texas, however, power demand is expected to reach a record high 74,900 megawatts (MW) on Monday and almost 75,000 MW on Tuesday as consumers crank up their air conditioners to escape a brutal heat wave.
Gas production in the Lower 48 states, meanwhile, rose to a record 91.8 bcfd over the weekend from a low of 90.8 bcfd last week, according to Refinitiv data.
Output hit that all-time high even though a section of Enbridge Inc’s Texas Eastern pipe remained shut in Kentucky after an explosion on Aug. 1 that killed one person. The company said it is working to restore service on two of the three lines near the blast site but will keep flows through the area at zero through at least Aug. 16.