US Natural Gas Prices Rise to Two-Week High Amidst Hot Weather

U.S. natural gas futures edged up about 1% to a two-week high on Wednesday as hot weather boosts the amount of gas power generators must burn to keep air conditioners humming and on near-record flows of gas to LNG export plants.

Front-month gas futures for August delivery on the New York Mercantile Exchange rose 2.8 cents, or 0.8%, to settle at $3.551 per million British thermal units, their highest close since June 27 for a second day in a row.

The U.S. National Hurricane Center said a tropical system off the west coast of Florida has about a 40% chance of strengthening into a tropical cyclone over the next week as it moves west into the Gulf of Mexico off Louisiana, Mississippi, Alabama and Florida.

Analysts have noted that tropical storms in the Gulf can knock some gas production out of service, but also noted that only about 2% of all U.S. gas comes from the federal offshore Gulf of Mexico.

The analysts said storms were more likely to be demand-destroying events that can reduce the amount of gas power generators burn by leaving millions of homes and businesses without electricity and cutting gas exports by shutting Gulf Coast LNG export plants.

Meteorologists forecast the weather in the Lower 48 U.S. states would mostly remain hotter than normal through at least July 31 with the hottest days of the summer expected next week.

Temperatures across the country will average around 81 degrees Fahrenheit (27.2 degrees Celsius) on July 24, topping this summer's current hottest day of 80 F on June 24 but falling short of the daily average record high of 83 F on July 20, 2022, according to data from financial firm LSEG going back to 2018.

In New England, extreme heat caused energy prices to spike as homes and businesses cranked up their air conditioners, forcing power companies to burn more gas to produce electricity. Spot gas prices soared by 61% to $12.50 per mmBtu, their highest since February, while next-day power prices jumped by 46% to a three-week high of around $184 per megawatt hour.

Temperatures in Boston, the biggest city in New England, will reach 91 F on Wednesday before falling to 86 F on Thursday, according to weather forecaster AccuWeather. The normal high in the city is 82 F at this time of year.

SUPPLY AND DEMAND

LSEG said average gas output in the Lower 48 rose to 106.9 billion cubic feet per day so far in July, up from a monthly record high of 106.4 bcfd in June.

LSEG forecast average gas demand in the Lower 48, including exports, would slide from 109.8 bcfd this week to 107.6 bcfd next week.

The average amount of gas flowing to the eight big U.S. LNG export plants has risen to 15.8 bcfd so far in July as liquefaction units at some plants slowly exited maintenance reductions and unexpected outages. That was up from 14.3 bcfd in June and 15.0 bcfd in May, but remained below the monthly record high of 16.0 bcfd in April.

 (Reuters)