U.S. natural gas futures climbed to the highest level since September as unusually hot weather drove demand from power plants to a record for the year.
The Southwest will see record heat early this week while above-normal readings sweep most of the lower 48 states through June 29, according to MDA Weather Services. Gas deliveries to electricity producers Monday will be 34.3 billion cubic feet, the most for 2016 and an record for the time of year, PointLogic Energy data show. Government projections forecast power-plant demand for gas will be at an all-time high later this summer.
Gas futures have rebounded 68 percent since dropping to a 17-year intraday low in March, driven by record production finally starting to slow as demand from generators jumped following an unprecedented number of coal unit shutdowns last year. Combined with unusually hot weather, this has steadily reduced a supply glut over the past two months, government data show.
“We are going to see stronger demand and lower production levels; that’s why we continue to push higher,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “We still have an excess of supply on hand, but the dynamics are changing and that fear has been receding slowly that we have too much gas.”
Natural gas for July delivery rose 8.6 cents, or 3.3 percent, to $2.709 per million British thermal units at 10:55 a.m. on the New York Mercantile Exchange after rising earlier to $2.719, the highest intraday price since Sept. 16.
“Nat gas prices are breaking out of the relatively shallow trading range that has been in play for the last week or so as a new round of warmer-than-normal temperatures seems to be emerging across major stretches of the U.S.,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note to clients Monday.
The California Independent System Operator Inc. issued an alert asking customers in the southern part of the state to conserve on Monday to avoid power outages. The grid operator warned that gas supplies to generators in the area may be tight because of limited operations at the Aliso Canyon storage field, according to a notice Sunday.
The high temperature in Los Angeles on Monday will be 100 degrees Fahrenheit (38 Celsius), 21 above normal, with “blazing sunshine,” according to AccuWeather Inc.
The most intense heat in the Southwest will be in the early part of this week. Weather forecasts predict warmer temperatures for the East next week compared with earlier models, meaning a delayed return to seasonal readings, said MDA Weather Services.
Gas stockpiles totaled 3.041 trillion cubic feet on June 10, 30.1 percent above the five-year average, U.S. Energy Information Administration data show. The supply glut narrowed from 52.1 percent three months ago as storage injections came in below average in recent weeks.
“We should be worried if we get a long period of sustained heat in the next two months; there is a good chance we could push above $3,” McGillian said.