U.S. natgas futures rise 2% to 4-week high on hotter forecasts

U.S. natural gas futures rose about 2% to a four-week high on Monday on forecasts for hotter weather and more demand this week than previously expected.

Extreme heat has already boosted power demand to record highs in several parts of the country, including Texas and other U.S. Central states, as homes and businesses crank up their air conditioners to escape the weather.

The gas price increase came even though output rose to near record highs and as the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas leaves more fuel in the United States for utilities to refill low storage.

Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. Freeport LNG has said the facility could return around Oct. 22. Some analysts, however, expect the outage to last longer.

Front-month gas futures for August delivery on the New York Mercantile Exchange (NYMEX) rose 16.1 cents, or 2.3%, to $7.177 per million British thermal units (mmBtu) by 8:34 a.m. EDT (1234 GMT), putting the contract on track for its highest close since June 16 for a second day in a row.

Last week, speculators boosted their net short futures and options positions on the NYMEX and Intercontinental Exchanges to the most since March 2020, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.

With the U.S. Federal Reserve expected to keep raising interest rates to fight inflation, open interest in NYMEX futures fell on Friday to its lowest since July 2016 as investors cut back on risky assets like commodities.

So far this year, the front-month is up about 93% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Russia’s invasion of Ukraine stoked fears Moscow would cut gas supplies to Europe.

Gas was trading around $47 per mmBtu in Europe and $39 in Asia.

After the shutdown of Nord Stream 1 for maintenance on July 11, 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.

The companies operating Nord Stream, led by Russian energy company Gazprom, have said the pipe should return around July 21. Analysts, however, said the outage could last longer.

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U.S. gas futures lag far behind global prices because the United States is the world’s top producer, with all the fuel it needs for domestic use, while capacity constraints limit LNG exports.

Data provider Refinitiv said average gas output in the U.S. 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, output rose to a preliminary 96.9 bcfd on Sunday, its highest since late December.

Refinitiv projected average U.S. gas demand including exports would slide from 100.9 bcfd this week to 99.9 bcfd next week as extreme heat starts to ease in some parts of the country. The forecast for this week was higher than Refinitiv’s outlook on Friday.

The average amount of gas flowing to U.S. LNG export plants held at 11.2 bcfd so far in July, the same as June. That was down from 12.5 bcfd in May and a monthly record of 12.9 bcfd in March due to the Freeport outage.

The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.