U.S. Natgas Prices Rise on More Demand, Slowing Output
U.S. natural gas futures climbed to a 15-week high Monday and held firm in early trading today on forecasts for cooler weather and more heating demand and slowing output.
Oil producers are shutting oil wells in shale basins due to the collapse in crude prices since the start of the year. Those oil wells also produce a lot of associated gas, which has contributed to a supply glut and depressed prices.
Monday's price increase came despite long-term forecasts for demand and exports to decline due to government lockdowns to stop the spread of the coronavirus.
Front-month gas futures for June delivery on the New York Mercantile Exchange rose 10.3 cents, or 5.4%, to settle at $1.993 per million British thermal units (Btu), their highest close since Jan. 17. U.S. prices were holding above $2.00 in morning trading.
Looking ahead, gas futures for the balance of 2020 and calendar 2021 were trading higher than the front-month on expectations demand will jump once governments loosen travel and work restrictions.
The U.S. Energy Information Administration (EIA) projected gas production will fall to an annual average of 91.7 billion cubic feet per day (bcfd) in 2020 and 87.5 bcfd in 2021 from a record 92.2 bcfd in 2019 as energy firms cut spending on drilling.
The EIA projected coronavirus lockdowns will cut U.S. gas use - not including exports - to an average of 83.8 bcfd in 2020 and 81.2 bcfd in 2021 from a record 85.0 bcfd in 2019.
Even though the coronavirus is reducing gas use, EIA still expects U.S. exports to hit record highs in coming years as more LNG export plants and pipelines enter service. Still, the agency has reduced its projections on the pace of that growth due to the pandemic.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states fell to 89.8 bcfd so far in May, down from an eight-month low of 92.8 bcfd in April and an all-time monthly high of 95.4 bcfd in November.
With cooler weather coming, Refinitiv projected demand in the Lower 48 states, including exports, would rise from an average of 84.2 bcfd this week to 88.5 bcfd next week. That compares with Refinitiv's forecasts on Friday of 79.5 bcfd this week and 82.8 bcfd next week.
Refinitiv said average U.S. pipeline exports to Canada rose to 2.9 bcfd so far in May, up from a six-month low of 2.4 bcfd in April and compared with an all-time monthly high of 3.5 bcfd in December.
Average pipeline exports to Mexico, meanwhile, fell 4.1 bcfd so far in May, down from an 11-month low of 4.7 bcfd in April and a record 5.6 bcfd in March.
U.S. LNG exports averaged 7.2 bcfd so far in May, down from a four-month low of 8.1 bcfd in April and an all-time high of 8.7 bcfd in February.
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