Hot weather swept through many parts of the US, and natural gas futures rose by about 2%, and Texas electricity demand may continue to set new records

The Zhitong Finance App learned that US natural gas futures rose on Friday. As the latest weather forecast shows that temperatures in many parts of the US will be higher than the same period in previous years, the market expects that the rise in demand for air conditioning electricity will drive an increase in demand for gas power generation. Meanwhile, electricity demand in Texas is likely to continue to set new records, further strengthening demand expectations in the natural gas market.

At the beginning of the US stock market on Friday, US natural gas futures for September delivery on the New York Mercantile Exchange (NYMEX) rose 5.4 cents, or about 2%, to 2.787 US dollars per million British thermal units.

The latest weather forecast has become a major factor driving up natural gas prices. According to Commodity Weather Group data, as of September 4, Texas, the southwestern United States, and the western inland regions are expected to experience higher than seasonal average temperatures.

Continued high temperatures are clearly boosting electricity demand in Texas. The Texas Electricity Reliability Commission (ERCOT), which is responsible for operating the largest power grid in Texas, predicts that every day from Friday to next Tuesday, the peak demand for electricity will exceed the record high in history set in July this year.

As residents and businesses increase the use of air conditioning, rising demand for electricity usually increases gas consumption in gas-fired power plants, so extreme hot weather is becoming an important support for short-term natural gas demand.

In addition to weather factors, West Texas's new gas pipeline transportation capacity is also changing the supply and demand pattern in the local market.

Hot weather combined with additional pipeline capacity enabled more natural gas from the Permian Basin to be transported outward, thereby reducing local supply pressure and driving a marked recovery in spot prices at Waha Hub, an important local trading center.

So far this week, the average spot price of Waha gas has exceeded $2 per million British thermal units. In the past, due to rapid growth in natural gas production in the Permian Basin, but insufficient export capacity, Waha prices were affected by oversupply pressure for a long time.

However, the additional pipeline capacity has also had a regional price impact. As more and more gas from the Permian Basin is transported to East Texas, supply in neighboring regions has increased, putting some downward pressure on the price of Henry Hub, the US gas benchmark located in southern Louisiana.

This means that on the one hand, the new pipeline mitigates the problem of oversupply of natural gas in West Texas and supports Waha prices, while on the other hand, it transports more supply to the US Gulf Coast market, thereby increasing supply in the area around Henry Hub.

Judging from overall supply and demand data, US gas production remains at a high level.

According to the data, dry gas production in the 48 states of the US is expected to be about 113.1 billion cubic feet per day, up 4.4% year on year; total gas demand is expected to be about 80.9 billion cubic feet per day, up 2.7% year on year.

In terms of exports, the US is expected to deliver about 8.3 billion cubic feet of dry gas to Mexico per day, an increase of 2% over the previous week.

Meanwhile, natural gas flows to US liquefied natural gas (LNG) export terminals are expected to be around 17.7 billion cubic feet per day, down 2.6% from the previous week, partly offsetting the increase in demand brought about by hot weather.

Overall, the heat up in the next few weeks and Texas electricity demand are likely to set new records, becoming the main factors supporting US gas prices in the short term. However, US natural gas production still increased by more than 4% year on year, and gas consumption at LNG export terminals also declined somewhat, which means that the supply side is still relatively abundant. Whether natural gas prices can continue to rise in the future will still depend on the duration of hot weather and the actual increase in electricity demand.