U.S. natgas futures gain over 2% on smaller-than-expected storage build

(Reuters) - U.S. natural gas futures gained over 2% on Thursday as a report showing smaller-than-expected storage build last week combined with record power demand in Texas and forecasts for hotter weather and greater cooling demand in late August to lift prices from a near three-year low in the prior session.

FILE PHOTO: A drilling rig operates in the Permian Basin oil and natural gas production area in Lea County, New Mexico, U.S. Picture taken February 10, 2019. REUTERS/Nick Oxford/File Photo

The U.S. Energy Information Administration said utilities added 55 billion cubic feet (bcf) of gas into storage during the week ended Aug. 2. That was below the 59-bcf build analysts forecast in a Reuters poll and compares with an injection of 46 bcf during the same week last year and a five-year (2014-18) average build of 43 bcf for the period.

The increase last week boosted stockpiles to 2.689 trillion cubic feet (tcf), 4.0% below the five-year average of 2.800 tcf for this time of year.

Front-month gas futures for September delivery on the New York Mercantile Exchange rose 4.5 cents, or 2.2%, to settle at $2.128 per million British thermal units, their highest close in a week. On Wednesday, the contract closed about a penny over Monday’s $2.070 close, which was the lowest settle since May 26, 2016.

Analysts said gas futures have traded near multiyear lows since May because record production and mild spring weather allowed utilities to inject huge amounts of gas into storage, shrinking a massive inventory deficit and removing concerns about shortages in the winter even though power demand and liquefied natural gas (LNG) exports are on track to hit all-time highs this year.

The amount of gas in inventory has remained below the five-year average since September 2017. It fell as low as 33% below that average in March 2019. But with production expected to keep growing, analysts said stockpiles should reach a near-normal 3.7 tcf by the end of the summer injection season on Oct. 31.

Meteorologists on Thursday forecast the weather this week and next would remain warmer than normal, especially in Texas and the rest of the South, before turning warmer than usual in two weeks across much of the country. In Texas, electric demand is expected to reach record levels on Thursday as consumers crank up their air conditioners, according to data from the state’s power grid operator.

Even though it is expected to turn warmer in two weeks and is already hot in the South, meteorologists forecast the weather next week would be a little cooler than this week.

Demand in the lower 48 states of the United States will slide to 89.8 billion cubic feet per day (bcfd) next week from 91.6 bcfd this week as power generators burn less gas to keep air conditioners running, according to projections from data provider Refinitiv.

Gas production in the lower 48 edged up to 91.0 bcfd on Wednesday from 90.8 bcfd on Tuesday, Refinitiv said. That compares with a record high of 91.7 bcfd on Monday.

Output hit all-time highs earlier this week even though a section of Enbridge Inc’s Texas Eastern pipe in Kentucky is expected to remain out of service through at least Aug. 12. An Aug. 1 explosion killed one person and is restricting gas flows from the Marcellus and Utica shale to the Gulf Coast.

Despite the Texas Eastern shutdown, output in the Appalachia region of Pennsylvania, Ohio and West Virginia rose to a record high 32.7 bcfd on Monday, according to Refinitiv.

The amount of gas flowing to U.S. LNG export terminals, meanwhile, eased to 4.0 bcfd on Wednesday from 4.1 bcfd on Tuesday. That keeps those flows close to the four-month low hit on Sunday after Cheniere Energy Inc shut two units at Sabine Pass in Louisiana for maintenance and one at Corpus Christi in Texas as part of its commissioning.

Reporting by Scott DiSavino; Editing by Bernadette Baum, Jonathan Oatis and Nate Raymond