U.S. Natgas Prices Jump 5% to One-Week High on Continued Hot Forecasts

U.S. natural gas futures jumped about 5% to a one-week high on Monday on forecasts for hotter weather and higher demand next week than previously expected.

That price increase came even though the heat wave blanketing much of the country for the past few weeks eased and with a major hurricane expected to hit Florida on Wednesday.

Tropical Storm Idalia is expected to strengthen into a hurricane later Monday and hit the northwest coast of Florida as a major hurricane with maximum sustained winds of 115 miles per hour (185 kilometers per hour) on Wednesday, according to the U.S. National Hurricane Center (NHC).

Traders said Idalia would likely knock out power to over a million homes and businesses, which would cut demand for both power and gas later this week. Florida consumed about 4.4 billion cubic feet per day (bcfd) of gas in 2022, with most of that fuel, about 3.8 bcfd, burned to produce power.

Despite the end of the heat wave that boosted demand in Texas to near record highs over the past couple of weeks, the state’s power grid operator, the Electric Reliability Council of Texas (ERCOT), projected electric supplies would exceed demand by just about 3,000 megawatts around 8 p.m. local time on Monday.

Worries about those tight supplies kept prices at the ERCOT North hub, which includes Dallas, at a still extremely high $1,056 per megawatt hour for Monday, down from a 30-month high of $1,599 for Friday when supplies were expected to be much tighter. That compares with an average of $91 so far this year, $78 in 2022 and a five-year (2018-2022) average of $66 per MWh.

Between Aug. 24 and Aug. 27, tight supplies forced ERCOT urge customers to conserve energy after the sun went down and solar power stopped working.

Extreme heat boosts the amount of gas burned to produce power for cooling, especially in Texas, which gets most of its electricity from gas-fired plants. In 2022, about 49% of the state’s power came from gas-fired plants, with most of the rest coming from wind (22%), coal (16%), nuclear (8%) and solar (4%), federal energy data showed.

On their second to last day as the front-month, gas futures for September delivery on the New York Mercantile Exchange rose 11.7 cents, or 4.6%, to $2.657 per million British thermal units (mmBtu) at 9:40 a.m. EDT (1340 GMT), putting the contract on track for its highest close since Aug. 15.

Futures for October, which will soon be the front-month, were up about 12 cents to $2.78 per mmBtu.

But with prices down for a second week in a row last week, speculators cut their net long gas futures and options positions on the New York Mercantile and Intercontinental Exchanges for the third time in four weeks to the lowest since late June, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.

SUPPLY AND DEMAND

Data provider Refinitiv said average gas output in the lower 48 U.S. states eased to 101.7 bcfd so far in August, down from 101.8 bcfd in July. That compares with a monthly record of 102.2 bcfd in May.

Despite a seasonal cooling, meteorologists forecast the weather in the lower 48 U.S. states will remain mostly hotter than normal through at least Sept. 12.

Refinitiv forecast that seasonal cooling will cause U.S. gas demand, including exports, to slide from 104.2 bcfd this week to 103.2 bcfd next week. The forecast for next week was higher than Refinitiv’s outlook on Friday Thursday, due in part to an expected increase in the amount of gas flowing to liquefied natural gas (LNG) export plants.

Gas flows to the seven big U.S. LNG export plants, meanwhile, fell from an average of 12.7 bcfd in July to 12.2 bcfd so far in August due mostly to reductions at Cheniere Energy’s Sabine Pass in Louisiana and Corpus Christi in Texas. That compares with a monthly record of 14.0 bcfd in April.

(Reporting by Scott DiSavino Editing by Tomasz Janowski)