US natgas futures up 2% on higher demand forecasts
U.S. natural gas futures gained about 2% on Friday on forecasts for more demand this week and next than previously expected.
That price increase came despite record output and as the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants declined due to spring maintenance.
Front-month gas futures for June delivery on the New York Mercantile Exchange rose 3.6 cents, or 1.7%, to settle at $2.137 per million British thermal units (mmBtu). On Thursday, the contract closed at its lowest since April 13.
Despite the daily increase, the contract was still down about 12% for the week after rising during the prior three weeks.
In the spot market, mild weather and weak demand in the U.S. West pressured next-day power and gas prices for Friday to their lowest levels in years.
Next-day gas at the Southern California Border fell to its lowest since July 2020, while next-day power sunk to its lowest since May 2020 at the SP-15 hub in Southern California and the Palo Verde hub in Arizona.
In Texas, the Electric Reliability Council of Texas (ERCOT) this week issued a Seasonal Assessment Resource Adequacy (SARA) report for the summer that projected peak power demand would reach 82,739 megawatts (MW). That would top the current record of 80,038 MW set in July 2022.
ERCOT said that under normal weather conditions, the grid should have enough resources to meet demand with over 98,000 MW of supply expected to be available this summer.
The grid operator, however, warned that generation reserves could run short if demand is higher than expected, power plant outages are higher than expected or wind and solar output are lower than expected.
Meteorologists projected the weather would remain mostly warmer than normal from May 5-16, with cooling degree days (CDD) exceeding heating degree days (HDD) over the next two weeks for the first time this year. The weather is expected to return to near-normal levels from May 17-20.
HDDs measure the number of degrees a day’s average temperature is below 65 degrees Fahrenheit (18 degrees Celsius) to estimate demand to heat homes and businesses, while CDDs measure the number of degrees a day’s average temperature is above 65 F to estimate demand to cool homes and businesses.
With the weather turning warmer, Refinitiv forecast U.S. gas demand, including exports, would slide from 96.3 bcfd this week to 92.1 bcfd next week and 91.7 bcfd in two weeks. The forecasts for this week and next were higher than Refinitiv’s outlook on Thursday.
Gas flows to the seven big U.S. LNG export plants slid to an average of 13.3 bcfd so far in May, down from a record 14.0 bcfd in April. The decline was due mostly to reductions at Cameron LNG’s terminal in Louisiana, Cheniere Energy Inc’s LNG.A Sabine Pass in Louisiana and Freeport LNG’s terminal in Texas.
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.
Source: Reuters (Reporting by Scott DiSavino; Editing by Diane Craft)