U.S. natural gas futures saw a sharp rise of around 7% on Monday, reaching a 12-week high. This increase was driven by concerns that oil and gas producers along the Gulf Coast might reduce their output due to the potential threat of a hurricane expected to hit the region later this week. The futures contract for October delivery on the New York Mercantile Exchange closed at $2.613 per million British thermal units (mmBtu), reflecting a rise of 17.9 cents or 7.4%. This marked the highest closing price since June 27.
Monday’s price jump represented the largest daily percentage gain for the contract since late August and moved the front-month contract into technically overbought territory for the first time since mid-June. According to the U.S. National Hurricane Center (NHC), a tropical disturbance in the Caribbean Sea is expected to develop into a hurricane by Wednesday and could potentially hit the Florida Panhandle by Thursday.
While storms generally lead to lower gas demand and prices due to power outages and the temporary shutdown of liquefied natural gas (LNG) export plants, analysts pointed out that this particular storm appeared unlikely to disrupt the major LNG facilities. This suggests that demand for gas from these export plants would remain high, even as some Gulf Coast producers scale back their production.
It’s important to note that over 75% of U.S. gas production comes from large inland shale basins like the Appalachian region in Pennsylvania, West Virginia, Ohio, and the Permian Basin in West Texas and eastern New Mexico. As a result, the bulk of the nation’s gas output is expected to remain unaffected by the approaching storm. This stands in contrast to conditions 20 years ago when about 20% of U.S. gas came from offshore regions in the Gulf of Mexico, and hurricanes frequently caused significant spikes in gas prices.
As milder autumn weather approaches, LSEG predicts that gas demand across the Lower 48 states, including exports, will decrease from an average of 99.1 billion cubic feet per day (bcfd) this week to 97.7 bcfd next week. These figures are slightly lower than LSEG’s previous forecast issued on Friday. In addition, gas flows to the seven major U.S. LNG export plants have averaged 12.8 bcfd so far in September, a slight decrease from the 12.9 bcfd recorded in August. The monthly record, set in December 2023, was 14.7 bcfd.
This reduction in gas flows can be attributed primarily to the planned shutdown of Berkshire Hathaway Energy’s Cove Point LNG export plant in Maryland for annual maintenance. The plant, with a capacity of 0.8 bcfd, began its scheduled three-week shutdown on September 20.
Diversified Energy Company plc (LON:DEC) is an independent energy company engaged in the production, marketing, transportation and retirement of primarily natural gas and natural gas liquids related to its U.S. onshore upstream and midstream assets.
