Nat-Gas Prices Supported by Hot US Weather

September Nymex natural gas (NGU26) on Monday closed up +0.009 (+0.32%).

Nat-gas prices settled higher on Monday amid forecasts for record-high temperatures in West Texas this week to support nat-gas demand. The largest Texas electric grid, the Electric Reliability Council of Texas, forecast that peak power demand this week could exceed the all-time record set in July.

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Nat-gas prices fell from their best level on Monday after updated US weather forecasts reduced the chances of extreme heat in the US South and West, potentially reducing nat-gas demand from electricity providers to power air conditioning use. The Commodity Weather Group said on Monday that forecasts shifted slightly cooler than previous forecasts, although above-average temperatures are still expected across Texas and the Southwest through September 7.

US (lower-48) dry gas production on Monday was 112.0 bcf/day (+2.3% y/y), according to BNEF. Lower-48 state gas demand on Monday was 77.7 bcf/day (+5.5% y/y), according to BNEF. Estimated LNG net flows to US LNG export terminals on Monday were 17.2 bcf/day (-0.3% w/w), according to BNEF.

As a positive factor for gas prices, the Edison Electric Institute reported last Wednesday that US (lower-48) electricity output in the week ended August 15 rose +2.36% y/y to 101,498 GWh (gigawatt hours). Also, US electricity output in the 52 weeks ending August 15 rose +2.24% y/y to 4,359,446 GWh.

As a bearish factor, the US Energy Information Administration (EIA) on August 11 projected that US nat-gas storage levels will swell to 3,985 bcf at the end of October, the highest level in 10 years and 5% above the five-year average. US nat-gas inventories are currently +6.7% above their 5-year seasonal average, a sign of robust supplies.

Nat-gas prices have some negative carryover from August 4, when Energy Transfer announced that the Hugh Brinson pipeline will be able to operate at its full transportation capacity of 1.5 bcf/day by September 1, allowing more gas supplies to flow from the Permian Basin to the US benchmark Henry Hub in Erath, Louisiana, boosting US domestic supplies.

A bearish medium-term factor for nat-gas prices is speculation that a powerful El Niño weather system will bring warmer-than-normal temperatures to the Northern Hemisphere this fall and winter, reducing nat-gas heating demand.