August futures close in on $3 as US gas-fired cooling demand spikes

26 Jun 2023 spglobal.com

Highlights

August, July gain 50-60 cents in two weeks

Power burn outlook drives futures higher

Feedgas flows to Sabine Pass on the rise

NYMEX Henry Hub natural gas futures prices surged to a 16-week high June 26 with the soon-to-be-prompt August contract trading into the low-$2.90s as the outlook for US gas demand continues to heat up.

Over the past two trading weeks, both August and July futures have gained over 50 cents. In mid-morning trading, the July contract was up again as it edges closer to expiration, moving to a nearly four-month high at over $2.80/MMBtu, data from CME Group and S&P Global Commodity Insights showed.

The steep rise in benchmark US gas prices marks a sharp turnaround from earlier this month when summer gas prices dipped to an almost four-week low. At the time, July gas futures settled at just $2.16/MMBtu as bearish weather forecasts and flagging demand dampened market sentiment.

More recently, triple-digit temperatures across Texas and beyond have fueled a steep rise in US gas-fired power burn. Over the past week, total gas demand from US power generators has climbed to nearly 40 Bcf/d, outpacing the prior three-year average by about 2.2 Bcf/d, or nearly 6%, according to data from S&P Global Commodity Insights.

At the US Gulf Coast LNG terminals, a rebound in feedgas demand over the past several days also appears to be adding momentum to the US gas market as the maintenance season nears its end.

Hot weather

Over the next week, gas demand from power generators is forecast to continue accelerating, rising to an average 41.8 Bcf/d, propelled largely by sweltering temperatures across Texas. In the week following, as the state's heatwave subsides, temperatures across the Northeast, the Midwest and the Southwest are forecast to rise alongside total US power burn demand. From July 4-10, demand from generators should climb to an average 43.8 Bcf/d, S&P Global data showed.

According to the National Weather Service's latest eight- to 14-day outlook, the biggest risk for hotter temperatures in the week to July 14, is in states along the US Gulf Coast, the desert Southwest and West. Combined, generators in the three US regions should tack on nearly 2.3 Bcf/d in additional power demand compared with the week prior, even as Texas demand retreat about 250-300 MMcf/d.

LNG demand

Over the past several days, feedgas demand from US LNG terminals also appears to be on the rebound with deliveries edging up to an estimated 11.4 Bcf/d June 26 – up from a recent low at 10.8 Bcf/d

The uptick in flows comes as deliveries to Cheniere Energy's Sabine Pass began picking up late last week and over the weekend. On June 26, deliveries to the terminal were estimated at 2.9 Bcf/d. Earlier this month, market participants pointed to likely maintenance at two of the terminal's five trains for the drop in feedgas flows which hit a low last week at just 2.2 Bcf/d.

Headed into July, an expected rebound in deliveries to Sabine Pass should help to tighten the US market balance. June to date, US feedgas demand has averaged just 11.3 Bcf/d. In May, when smaller maintenance disruptions were likely to blame for lower feedgas demand, gas deliveries for export still averaged about 13 Bcf/d. In April, before the terminal maintenance season started, flows averaged nearly 14 Bcf/d, S&P Global data showed.