US Natural Gas Futures Hold Steady Ahead of Storage Report

(Reuters) — U.S. natural gas futures held steady on Thursday as the market waits for direction from a federal report expected to show a smaller than usual storage build last week as power generators burned lots of gas to keep air conditioners humming.

That lack of price movement came despite bearish forecasts for less hot weather through mid-August than previously expected and an increase in output to near record highs. It also came despite bullish forecasts for higher demand next week than previously expected.

Gas-fired power plants have provided over 40% of the nation's power this month, according to federal energy data, even though gas prices were up about 57% so far in July in part because coal prices were at record highs. That makes it uneconomic for some generators to use their coal-fired plants.

U.S. power output hit a preliminary record high in the week to July 23, according to data from Refinitiv and the Edison Electric Institute (EEI), an industry group.

Analysts forecast U.S. utilities added 22 billion cubic feet (Bcf) of gas to storage during the week ended July 22. That compares with an increase of 38 Bcf in the same week last year and a five-year (2017-2021) average increase of 32 Bcf.

If correct, last week's increase would boost stockpiles to 2.423 trillion cubic feet (Tcf), or 12.2% below the five-year average of 2.761 Tcf for this time of the year.

That small, expected storage build came despite the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas, which has left more gas in the United States for utilities to inject into low stockpiles.

Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (Bcf/d) of gas before it shut on June 8. Freeport LNG estimated the facility will return to partial service in October. Some analysts say the outage could last longer.

On its first day as the front-month, gas futures for September delivery fell 2.9 cents, or 0.3%, to $8.525 per million British thermal units (MMBtu) at 8:36 a.m. EDT (1236 GMT).

On Tuesday, when the August contract was still the front-month, the contract soared to an intraday 14-year high of $9.752 per MMBtu.

So far this year, the front-month was up about 128% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Europe started reducing the amount of gas it imports from Russia since Moscow's invasion of Ukraine on Feb. 24.

Gas was trading around $60 per MMBtu in Europe and at $43 in Asia.

The United States became the world's top LNG exporter during the first half of 2022. But no matter how high global gas prices rise, the United States cannot export any more LNG due to capacity constraints.

Russian gas exports on the three main lines into Germany - Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route fell to 2.6 Bcf/d on Thursday from around 3.7 Bcf/d since Nord Stream exited a maintenance outage on July 21.

That decline was due to additional work on the Nord Stream pipe.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states had risen to 96.2 Bcf/d so far in July from 95.3 Bcf/d in June. That compares with a monthly record high of 96.1 Bcf/d in December 2021.

Refinitiv projected average U.S. gas demand including exports would slide from 99.3 Bcf/d this week to 97.5 Bcf/d next week as extreme heat starts to ease in some parts of the country. The forecast for next week was higher than Refinitiv's outlook on Wednesday.

 

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