U.S. natural gas up 2% to two-month high as Canada wildfires keep exports low

(Reuters) - U.S. natural gas futures rose about 2% to a two-month high on Thursday as wildfires kept gas exports from Canada near a 25-month low.

That price increase came ahead of a federal report expected to show a bigger-than-usual U.S. storage build last week when mild weather kept demand for the fuel low for both heating and cooling.

Analysts forecast U.S. utilities added 108 billion cubic feet (bcf) of gas into storage during the week ended May 12.

That compared with an increase of 87 bcf in the same week last year and a five-year (2018-2022) average increase of 91 bcf.

If correct, last week's increase would boost stockpiles to 2.249 trillion cubic feet (tcf), or 18.4% above the five-year average of 1.900 tcf for the time of year.

Front-month gas futures for June delivery on the New York Mercantile Exchange rose 4.9 cents, or 2.1%, to $2.414 per million British thermal units (mmBtu) at 9:16 a.m. EDT (1316 GMT), putting the contract on track for its highest close since March 16.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states held at 101.4 billion cubic feet per day (bcfd) so far in May, matching the monthly record high in April.

The amount of gas flowing from Canada to the U.S. dropped to a fresh 25-month low of 6.4 bcfd on Wednesday as wildfires in Alberta caused some producers to shut oil and gas output and pipeline flows over the past couple of weeks.

During those two weeks, U.S. gas futures gained about 13% as Canada exported an average of just 7.1 bcfd of gas to the U.S. That is down from an average of 8.4 bcfd since the start of the year and 9.0 bcfd in 2022.

About 8% of the gas consumed in the U.S. or exported as liquefied natural gas (LNG) or via pipelines comes from Canada.

Meteorologists projected the weather in the U.S. Lower 48 states would switch from near-normal levels from May 18-27 to warmer than normal from May 28-June 2.

Refinitiv forecast U.S. gas demand, including exports, would slide from 93.0 bcfd this week to 89.6 bcfd next week.

Gas flows to the seven big U.S. LNG export plants fell from a record 14.0 bcfd in April to an average of 12.9 bcfd so far in May due to maintenance work at several plants, including Cameron LNG in Louisiana and Cheniere Energy Inc's Sabine Pass in Louisiana.

Last month's record flows were higher than the 13.8 bcfd of gas the seven plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG.

Global gas price collapse

Some analysts have questioned whether this year's gas price collapse in Europe and Asia could force U.S. exporters to cancel LNG cargoes this summer after mostly mild weather over the winter left massive amounts of gas in storage. In 2020, at least 175 LNG shipments were canceled due to weak demand.

But for now, most analysts say energy security concerns following Russia's invasion of Ukraine in February 2022 should keep global gas prices high enough to sustain record U.S. LNG exports in 2023.

Gas was trading near 23-month lows of around $10 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and the Japan Korea Marker (JKM) in Asia.

That put TTF down about 58% and JKM down about 66% so far this year.

U.S. gas futures, which were down about 46% so far this year, 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 prevent the country from exporting more LNG.

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