Lower temperature forecast dampens U.S. spot gas and futures prices

An expected outage of very hot weather in the Northeast and Midwest of the United States is expected to ease natural gas demand from the power sector until at least August 13, easing recent supply-demand tensions. demand and weaken spot gas prices.

Already, spot gas prices in most parts of the United States fell on August 8, trading for flows the next day, according to preliminary settlement data from S&P Global Commodity Insights. In the U.S. Midwest and Midcontinent, spot gas prices fell 30 to 50 cents, while most Southeast gas spot prices fell 30 to 45 cents and spot gas prices in Appalachia fell 20 to 30 cents. Cash Henry Hub fell 41.50 cents to $7.77/MMBtu in preliminary settlement.

U.S. gas futures also fell during August 8 trading, with September’s NYMEX Henry Hub contract falling nearly 50 cents from its previous day’s settlement at $7.589/MMBtu.

Spot and futures prices remained relatively high in August 8 trading compared to years past, largely due to soaring demand for gas from the power sector. July featured the highest monthly demand for gas-fired electricity on record, according to Platts Analytics data dating back to 2012.

High demand for gas-fired electricity continued in August, averaging 46.2 Bcf/d since the start of the month, up 8.2 Bcf/d, or 22%, from levels from a year ago.

Warmer temperatures expected

CustomWeather predicts the average temperature in the United States will drop five degrees over the next five days, falling to 75 F by August 13.

The Northeast is expected to see the most dramatic drop in temperature, which is expected to drop steadily from nearly 83 degrees Fahrenheit on August 8 to 77 F on August 10, and even lower to 69 F on August 13.

The drop in temperature could have a substantial weakening effect on spot gas prices in the northeast, as recent heat waves have boosted local gas demand at a time when production is increasing and capacity to delivery is limited. Regional gas demand has averaged 18.45 Bcf/d so far in August, up 3.66 Bcf/d, or 25%, from the same period last year.

The Midwest is also expected to see temperatures weaken, albeit to a lesser extent. CustomWeather forecast the Midwest’s average temperature to cool steadily to 70 F on August 13, from 75 F on August 8.

California exception

Spot gas prices in Southern California were the main exception to the national downward trend in August 8 trading and may remain an exception in the near term.

Cash SoCal Gas, city gate, gained 63.50 cents to trade at $10.21/MMBtu, in line with other regional El Paso, South Mainline and Kern River delivered which also traded at Above or near $10/MMBtu, preliminary settlement data from S&P Global shows.

Southern California has faced pipeline constraints limiting inflows from the Permian Basin this year, requiring higher prices to attract molecules from the Rockies, Canada, and storage.

These entry-limiting constraints intensified on August 8, as El Paso Natural Gas began a new phase of repair work on Line 2000 that will further reduce delivery capacity at Ehrenberg, a key interconnection for Permian flows. south of California. The new phase deepens capacity reductions to 629 MMcf/d from 450 MMcf/d until at least August 31. compared to the average of the previous seven days.
Source: Platts