US natural gas futures surged, reaching a four-week high on Wednesday, with September Nymex natural gas (NGU26) closing up $0.038 (+1.37%). This rally was driven by updated weather forecasts predicting intensely hot temperatures across the US South and West through the end of August and into early September. The Commodity Weather Group indicated that above-average temperatures are expected to significantly boost natural gas demand for electricity generation, primarily to power air conditioning units.
The Electric Reliability Council of Texas (ERCOT) is anticipating record-breaking power demand, with projections exceeding the current record of 91.089 gigawatts daily from August 20 through August 24, potentially topping it by nearly 1 gigawatt later in the period. High temperatures in Houston are forecast to average 100°F (38°C) from August 20-23, about 5°F above seasonal norms, while Dallas could see 105°F with heat indexes near 110°F. This surge in demand is exacerbated by an expected decline in wind generation, which will place additional strain on gas-fired power plants to meet the increased load.
Despite the recent price rally, several factors could cap further gains. US lower-48 dry gas production on Wednesday stood at 112.0 bcf/day (+2.7% year-over-year), while lower-48 state gas demand was 83.6 bcf/day (+4.3% year-over-year). The US Energy Information Administration (EIA) previously projected that US natural gas storage levels would reach 3,985 bcf by the end of October, marking a 10-year high and 5% above the five-year average, indicating robust supplies. Additionally, the Hugh Brinson pipeline is expected to operate at full capacity of 1.5 bcf/day by September 1, increasing gas supplies to the Henry Hub, and maintenance at the Freeport LNG export terminal has kept approximately 2 bcf per day of export capacity offline since July, diverting gas to the domestic market. However, a smaller-than-normal build in US natural gas storage, with estimates of a +14 bcf increase for the week ended August 14, below the five-year average build of +29 bcf, could support prices if confirmed by the upcoming EIA report.
