US natgas prices climb 4% to 10-week high on lower output, higher demand

U.S. natural gas futures jumped about 4% to a 10-week high on Wednesday on a slightly smaller-than-expected weekly storage build, lower daily output and forecasts for hotter weather and higher demand over the next two weeks than previously expected.

That heat should prompt homes and businesses to crank up their air conditioners, pushing power generators to burn more gas to produce electricity to keep those air conditioners humming.

Analysts said that heat would likely come at the same time some liquefied natural gas (LNG) export plants exit maintenance, which should further boost demand for gas to feed those export plants.

Gas futures for July delivery NG1! on the New York Mercantile Exchange rose 13.8 cents, or 3.6%, to settle at $3.989 per million British thermal units (mmBtu), putting the contract on track for its highest close since April 3 for a second day in a row.

The U.S. Energy Information Administration said energy firms pulled 95 billion cubic feet (bcf) of gas from storage during the week ended June 13.

That was a little smaller than the 98-bcf build analysts forecast in a Reuters poll and compared with an increase of 72 bcf during the same week last year and a five-year (2020-2024) average of 72 bcf for this time of year.

The EIA released the latest storage report on Wednesday, a day earlier than usual, due to the U.S. Juneteenth holiday on Thursday, June 19.

For seven weeks in a row up until the week ended June 6, energy firms added 100 bcf or more of gas into storage, tying the seven-week triple-digit injection record set in June 2014, according to federal energy data going back to 2010.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the Lower 48 U.S. states edged up to 105.3 billion cubic feet per day so far in June, up from 105.2 bcfd in May. That remained below the monthly record high of 106.3 bcfd in March due primarily to normal spring maintenance earlier in the month.

On a daily basis, however, output was on track to drop by around 2.6 bcfd to a two-week low of 103.8 bcfd on Wednesday, down from a seven-week high of 106.4 bcfd on Sunday. That compares with an all-time daily high of 107.5 bcfd on April 18.

With hotter summer weather coming, LSEG forecast average gas demand in the Lower 48, including exports, would rise from 99.3 bcfd this week to 102.7 bcfd next week. Those forecasts were higher than LSEG's outlook on Tuesday.

The average amount of gas flowing to the eight big U.S. LNG export plants fell to 14.0 bcfd so far in June, down from 15.0 bcfd in May and a monthly record high of 16.0 bcfd in April.

Traders said LNG feedgas reductions since April were primarily due to normal spring maintenance, including work at Cameron LNG's 2.0-bcfd plant in Louisiana and Cheniere Energy's LNG 4.5-bcfd Sabine Pass facility in Louisiana and 3.9-bcfd Corpus Christi plant in Texas, and short, unplanned unit outages at Freeport LNG's 2.1-bcfd plant in Texas on May 6, May 23, May 28, June 3 and June 17.

Energy traders said they expect maintenance to continue through late-June at Sabine, which has been pulling about 3.0 bcfd of gas since the end of May. That figure compares with average feedgas of 4.5 bcfd during the month of May.