U.S. natgas up 3% after hitting 14-yr high ahead of contract rollover

FILE PHOTO: A natural gas flare on an oil well pad burns as the sun sets outside Watford City, North Dakota
A natural gas flare on an oil well pad burns as the sun sets outside Watford City, North Dakota January 21, 2016. REUTERS/Andrew Cullen

July 26 (Reuters) - U.S. natural gas futures closed up about 3% at a seven-week high after jumping to a 14-year high earlier in the session on Tuesday on forecasts for hotter weather and higher demand, worries about Russian gas flows to Europe, record coal prices and the coming expiration of the front-month contract.

That puts the contract on track to gain a record-setting 66%in July. The current all-time monthly percentage gain is 63% in September 2009.

"The fundamentals over the last couple of weeks suggested higher prices due to the excessive heat for July and low storage injections as a result," analysts at Gelber & Associates said, noting that Tuesday's run-up was not due to the hot weather.

Extreme heat has already caused U.S. power demand to hit several all-time highs this summer in many states, including Texas, as homes and businesses crank up their air conditioners. read more

To keep those air conditioners humming, electric companies were burning more gas than usual due to the retirement of dozens of coal power plants in recent years and because coal prices were at record highs, making it uneconomic for many generators to switch on some of the coal plants that remain.

The spike in gas prices came despite an increase in gas output to near record levels and the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas, which has left more gas in the United States for utilities to inject into low stockpiles.

Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut on June 8. Freeport LNG estimated the facility will return to partial service in October. Some analysts say the outage could last longer. read more

On its second-to-last day as the front-month, gas futures for August delivery rose 26.6 cents, or 3.0%, to settle at $8.993 per million British thermal units (mmBtu), their highest close since June 7.

Earlier in the session, the front-month hit $9.752 per mmBtu, its highest intraday trade since July 24, 2008.

Gas market close-to-close volatility over the past 30 days rose to its highest since March. Volatility hit a record high in February.

So far this year, the gas front-month is up 139% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Russia's invasion of Ukraine. The United States became the world's top LNG exporter during the first half of 2022. read more

"The U.S. gas market has become international in recent years to the extent that overseas developments can spill quickly into the U.S. market and U.S. export activity could remain maxed out through next year," analysts at Ritterbusch and Associates, a consultancy, said in a note.

Gas was trading around $55 per mmBtu in Europe and at $39 in Asia . That put European prices up about 19% on the expectation Russia will cut gas flows on the Nord Stream pipeline, which prompted the European Union to seek curbs on gas use. read more

But no matter how high global gas prices rise, the United States cannot export any more LNG due to capacity constraints.

Russian gas exports on the three main lines into Germany - Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route have held near 3.8 bcfd since July 21 when Nord Stream exited a maintenance outage, up from around 1.4 bcfd for the 10 days the pipe was shut.

That was close to the 3.7 bcfd average during the month before Nord Stream shut but was still much lower than the 9.4 bcfd average in July 2021. read more

Reporting by Scott DiSavino; editing by Jason Neely, Andrea Ricci and Jonathan Oatis

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