Natural Gas Market Balances Heat and Strong Supply

US natural gas prices fluctuated around $2.80 per million British thermal units as investors weighed hotter weather forecasts and rising LNG demand against strong supply levels. Forecasts now point to significantly hotter conditions across the central and southern US, which could boost electricity demand as consumers increase air-conditioning use and raise gas consumption by power generators. Also, flows to US LNG export terminals on the Gulf Coast climbed to their highest level in more than a month as some facilities appeared to complete seasonal maintenance, reducing gas available to the domestic market. However, elevated inventories continue to limit the upside, with storage expected to remain 6.6% above the five-year average for the week ending August 7. Strong production and additional supply from West Texas pipelines coming online are also expected to keep the market well supplied.

US natural gas prices rose above $2.7 per MMBtu, supported by stronger demand from liquefied natural gas (LNG) export facilities. Daily flows to the nine major US LNG export plants were on track to reach a one-month high of 17.9 bcfd. Also, average feedgas demand stood at 17.2 bcfd in July, just below June’s monthly record of 17.4 bcfd. Meanwhile, natural gas production in the Lower 48 states averaged a record 111.2 bcfd in August, up from 110.7 bcfd in July. Strong output and relatively mild weather earlier this year have kept inventories above the five-year average since March. Analysts expect the storage surplus to narrow slightly to 6.6% above normal for the week ending August 7. However, forecasts point to continued above-normal temperatures through August 25, which should sustain gas demand from power generators as air-conditioning use remains elevated.

US natural gas prices hovered below $2.70 per MMBtu, near the lowest level since April, pressured by a larger-than-expected build-up in storage. The EIA report showed energy firms injected 33 bcf of gas into storage in the week ended July 31, exceeding forecasts of a 31 bcf increase, last year’s 13 bcf build, and the five-year average rise of 23 bcf. On top of that, production remained near record highs despite a slight easing, with Lower 48 dry gas output averaging 110.6 bcfd so far in August, compared with a record 110.7 bcfd in July. LNG feedgas demand also continued to weaken, with average flows to the nine major LNG export plants falling to 16.9 bcfd so far this month from 17.2 bcfd in July, due partly to reduced operations at Freeport LNG in Texas and the single operating liquefaction train at Golden Pass. These factors more than offset support from expectations of higher weather-driven demand, with forecasts pointing to mostly above-normal temperatures through August 21.