Forecast lower temperatures dampen US spot gas, futures prices

A forecast break from very hot weather in the US Northeast and Midwest is expected to ease power-sector demand for natural gas through at least Aug. 13, loosening recent supply-demand tightness and weakening spot gas prices.

Already, spot gas prices in most US regions moved lower in Aug. 8 trading for next-day flows, preliminary settlement data from S&P Global Commodity Insights shows. In the US Midwest and Midcontinent, spot gas prices fell 30-50 cents, while most Southeast spot gas prices dropped 30-45 cents and Appalachia spot gas prices fell 20-30 cents. Cash Henry Hub dropped 41.50 cents to $7.77/MMBtu at preliminary settlement.

US gas futures also tumbled in Aug. 8 trading, with the NYMEX Henry Hub September contract down nearly 50 cents from its prior-day settlement at $7.589/MMBtu.

Both spot and futures prices remained relatively elevated in Aug. 8 trading, compared with recent years, in large part because of soaring power sector demand for gas. July featured the strongest monthly gas-fired power demand on record, according to Platts Analytics data going back to 2012.

The elevated gas-fired power demand has continued into August, averaging 46.2 Bcf/d month to date – up 8.2 Bcf/d, or 22%, from year-ago levels.

Milder temperatures forecast

CustomWeather forecast that the average US temperature will slide five degrees lower over the next five days, falling to 75 F by Aug. 13.

The Northeast is expected to see the most dramatic temperature drop, forecast to fall steadily from nearly 83 degrees Fahrenheit on Aug. 8 to 77 F on Aug. 10, and even further to 69 F on Aug. 13.

The temperature drop could have a substantial weakening effect on Northeast spot gas prices, as recent heat waves have boosted local demand for gas at a time of rising production and constrained takeaway capacity. Regional gas demand has averaged 18.45 Bcf/d so far this August, up 3.66 Bcf/d, or 25%, from the same time last year.

The Midwest was also forecast to see temperatures weaken, albeit to a lesser extent. CustomWeather forecast that the average Midwest temperature would steadily cool to 70 F on Aug. 13, down from 75 F on Aug. 8.

California exception

Spot gas prices in Southern California were the main exception to the national downward trend in Aug. 8 trading and could 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 locations El Paso, South Mainline and Kern River, delivered that were also trading 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, necessitating higher prices to lure molecules from the Rockies, Canada, and from storage.

These constraints limiting inflows intensified on Aug. 8, as El Paso Natural Gas began a new phase of repair work on Line 2000 that will further reduce delivery capacity to Ehrenberg, a key interconnect for Permian-to-Southern California flows. The new phase deepens the capacity cuts to 629 MMcf/d from 450 MMcf/d through at least Aug. 31. Pipeline nomination data shows that El Paso deliveries to SoCalGas at Ehrenberg dropped to 398 MMcf Aug. 8, down nearly 90 MMcf/d from the prior seven-day average.