U.S. NatGas Soars Over 7% to 32-Month High on Small Storage Build, Hot Weather

(Reuters) — U.S. natural gas futures jumped more than 4% on Friday to a fresh 32-month high on forecasts the weather will remain hotter than normal through mid-September and concerns Hurricane Ida will shut Gulf of Mexico production when it hits the Louisiana area as a major storm early next week.

Traders also noted that lower than usual amounts of gas in U.S. storage ahead of the coming winter and near record gas prices in Europe and Asia continued to boost U.S. gas futures on expectations U.S. liquefied natural gas (LNG) exports will rise to all-time peaks in coming months.

That, of course, depends on whether the hurricane shuts Gulf Coast LNG plants for extended periods of time like last year. Analysts noted storms in the Gulf of Mexico like Ida can reduce gas prices and demand by causing power outages and LNG terminals to shut, but they can also boost prices by knocking Gulf Coast production out of service.

About 2% of total U.S. gas comes from the federal offshore Gulf of Mexico, while another 8% comes from on- and offshore Louisiana, according to federal data. On its last day as the front-month, gas futures for September delivery rose 18.6 cents, or 4.4%, to settle at $4.370 per million British thermal units (mmBtu), their highest close since December 2018 for a second day in a row. The October contract, which will soon be the front-month, was up about 17 cents to $4.39 per mmBtu.

For the week, the front-month gained almost 14%, its biggest weekly gain since October 2020. Last week, the contract fell less than 1%. In the power market, the Electric Reliability Council of Texas (ERCOT), grid operator for most of the state, projected hot weather next week would drive peak demand to a 2021 high of 73,933 megawatts (MW) on Aug. 31. That would top the current year high of 73,463 MW on Aug. 24, but would fall short of the grid's all-time high of 74,820 MW in August 2019.

Even though data provider Refinitiv said preliminary gas output in the U.S. Lower 48 states fell over 1 billion cubic feet per day (bcfd) on Friday due mostly to reductions in the Gulf of Mexico as producers shut-in wells ahead of Storm Ida, total U.S. production was still up to an average of 92.1 bcfd so far in August, versus 91.6 bcfd in July. That compares with an all-time monthly high of 95.4 bcfd in November 2019.

Although the total oil and gas rig count has increased for a 13th month in a row, most of the recent gains were from oil rigs. Drillers have not added gas rigs since mid July.

With the coming of seasonally cooler weather, Refinitiv projected average U.S. gas demand, including exports, would slide from 94.3 bcfd this week to 93.6 bcfd next week and 88.8 bcfd in two weeks as power generators burn less of the fuel with air conditioning demand easing.

The forecast for next week was lower than Refinitiv projected on Thursday. The amount of gas flowing to U.S. LNG export plants slipped to an average of 10.5 bcfd so far in August from 10.8 bcfd in July.

Traders, however, noted LNG feedgas was already increasing as companies operating the Cameron and Sabine plants in Louisiana and the pipelines that serve them finish maintenance work. That compares with a record 11.5 bcfd in April.

With European and Asian gas both trading over $16 per mmBtu, compared with just over $4 for the U.S. fuel, analysts said buyers around the world would keep purchasing all the LNG the United States can produce.

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