US natgas rises 2% on hot weather forecasts, traders assess storm impact

U.S. natural gas futures rose more than 2% on Wednesday on hotter weather forecasts, while traders assessed the impact from Hurricane Idalia that could lead to lower demand for the fuel.

On their first day as the front-month, U.S. gas futures NGc1 for October delivery on the New York Mercantile Exchange rose 6.4 cents, or 2.4%, to $2.73 per million British thermal units (mmBtu) at 9:44 a.m. EDT (1344 GMT).

“One uncertainty is the impact of possible storms on Gulf production as we enter the height of the storm season. But normally the impact would be short lived if no major damage is done,” said Zhen​ Zhu, managing consultant at C.H. Guernsey and Co in Oklahoma City.

However, “the market has retreated some lately despite of the abnormal heat blanketed most of the south and the central regions. I think the prolific production is behind the market feeling less worried about the shrinking storage surplus.”

Hurricane Idalia made landfall in Florida as an “extremely dangerous” Category 3 storm on Wednesday after millions of residents evacuated or hunkered down in homes and shelters in anticipation of a life-threatening storm surge.

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.

So far, more than 200,000 homes and businesses were without power in Florida, according to data from PowerOutage.us.

Despite worries about a possible strike at U.S. energy major Chevron’s CVX.N liquefied natural gas (LNG) export plants in Australia, gas prices in Europe were trading around 11 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark TRNLTTFMc1 on Wednesday, after soaring 20% over the prior two days.

Australia, along with Qatar and the U.S., is one of the world’s biggest LNG producers. If Australia’s LNG supplies decline, analysts expect global gas prices will rise.

Meanwhile, the Texas power grid operator ERCOT issued an appeal to the public for energy conservation on Tuesday for the seventh time this month, as operating reserves were expected to be low amid a lingering heat wave.

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.

SUPPLY AND DEMAND

Data provider Refinitiv said average gas output in the lower 48 U.S. states fell to 101.1 bcfd so far in August, down from 101.8 bcfd in July. That compares with a monthly record of 102.2 bcfd in May.

On a daily basis, output was on track to drop by 1.5 bcfd to a preliminary two-month low of 99.2 bcfd on Wednesday due mostly to reductions in Colorado, North Dakota and West Virginia.

Even though the heat wave has broken, meteorologists still forecast the weather in the lower 48 U.S. states will remain mostly hotter than normal through at least Sept. 13.

But with a seasonal cooling of the weather, Refinitiv forecast U.S. gas demand, including exports, would slide from 104.0 bcfd this week to 101.8 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Tuesday.

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 reductions at Cheniere Energy’s LNG.A Sabine Pass in Louisiana and Corpus Christi in Texas. That compares with a monthly record of 14.0 bcfd in April.
Source: Reuters (Reporting by Brijesh Patel in Bengaluru; Editing by Sharon Singleton)