U.S. natural gas prices up 1% on hot forecasts, strong air conditioning demand

(Reuters) - U.S. natural gas futures edged up about 1% on Friday on forecasts for the weather to remain hotter than normal through mid-August, keeping air conditioning demand extremely high, especially in Texas.

That price increase came despite a decline in the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants due to maintenance work.

Power demand in Texas hit an all-time high on Monday and Tuesday and will likely break that record again on Friday and early next week as homes and businesses keep their air conditioners cranked up during the lingering heat wave, according to forecasts by the Electric Reliability Council of Texas (ERCOT), the state's power grid operator.

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.

Front-month gas futures for September delivery on the New York Mercantile Exchange rose 1.2 cents, or 0.5%, to settle at $2.577 per million British thermal units (mmBtu).

For the week, the front-month was down about 2% after losing about 3% last week.

One factor that has weighed on gas futures in recent months - futures were down about 42% so far this year - has been persistently lower spot prices. Next-day gas at the Henry Hub benchmark in Louisiana was trading around $2.44 per mmBtu for Friday. Spot gas has traded over futures only once since the end of April.

Supply and demand

Data provider Refinitiv said average gas output in the U.S. Lower 48 states held at 101.8 billion cubic feet per day (bcfd) so far in August, the same as in July. That compares with a monthly record of 102.2 bcfd in May.

Meteorologists forecast the weather in the Lower 48 states will remain hotter than normal through at least Aug. 19.

Refinitiv forecast U.S. gas demand, including exports, would hold at 104.8 bcfd this week and next before rising to 106.9 bcfd as power generators burn more of the fuel and exports rise. The forecast for next week was lower than Refinitiv's outlook on Thursday.

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

The U.S. is on track to become the world's biggest LNG supplier in 2023 - ahead of recent leaders Australia and Qatar – as much higher global prices continue to feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia's war in Ukraine.

Gas was trading around $9 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $11 at the Japan Korea Marker (JKM) in Asia.

That puts global gas prices down about 62% so far this year after hitting record highs in 2022 due to mild winter temperatures that left northern hemisphere storage at above-normal levels.

In 2022, roughly 69%, or 7.2 bcfd, of U.S. LNG exports went to Europe as shippers diverted cargoes from Asia to get higher prices. In 2021, when prices in Asia were higher, just 35%, or about 3.3 bcfd, of U.S. LNG exports went to Europe.

With the return of higher gas prices in Asia this year, analysts said they expect U.S. LNG exports to Asia will increase. But that has not happened yet. Just 19%, or 2.1 bcfd, of U.S. LNG exports went to Asia during the first half of 2023, while 70%, or 8.0 bcfd, went to Europe.

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