Natural Gas Forecast: Rising Demand Eyed as Texas Faces Record-Breaking Electricity Use

Highlights

• LNG exports and high temperatures boost natural gas demand.
• Decreasing drilling activity and rising cooling demand impact supply.
• Texas experiences record-breaking electricity use, relying on gas-fired plants.

Overview

U.S. natural gas futures are experiencing a slight decline on Tuesday after reaching their highest level in over three months the previous session. The increase in demand was primarily driven by expectations of rising demand for liquefied natural gas (LNG) exports and soaring temperatures, particularly in Texas, as they anticipated to boost cooling demand.

Declining Rig Count Signals Drilling Pullback

The number of oil and natural gas rigs operating in the country has been steadily decreasing for eight consecutive weeks, signaling a pullback in drilling activity. Additionally, data provider Refinitiv predicts a rise in demand for LNG exports, with estimates indicating an increase from 11 billion cubic feet per day (bcfd) to 11.5 bcfd this week and further to 12.6 bcfd next week.

Rising Cooling Demand Exceeds Norms

Forecasts also indicate an increase in cooling demand, with the number of cooling degree days (CDDs) expected to surpass the 10-year and 30-year norms. This measurement estimates the demand for cooling homes and businesses based on the average temperature exceeding 65 degrees Fahrenheit.

Growing Power Plant Demand

Power plants in the United States are projected to consume 41.1 bcfd of natural gas this week, indicating an increase from the previous week’s consumption of 38.5 bcfd and a further rise to 44.5 bcfd the following week. Experts anticipate that the combined impact of higher LNG exports and the growing demand from power plants will drive up the total U.S. demand for natural gas from 94.7 bcfd last week to 97.9 bcfd this week, and subsequently to 102 bcfd next week.

Texas Faces Record Electricity Demand

Texas faces record-breaking electricity use due to scorching temperatures projected by ERCOT. Gas-fired plants dominate electricity generation, leading to increased natural gas consumption. In 2022, gas-fired plants accounted for 49% of Texas’ power, followed by wind (22%), coal (16%), nuclear (8%), and solar (4%).

Political Turmoil in Russia – New Concern

Global political concerns drive rising wholesale gas prices in Dutch and British markets. The impending closure of the Netherlands’ Groningen gas field will impact European gas supply.

Short-Term Outlook:  Significantly Increased Demand

Looking ahead, weather forecasts for the upcoming week indicate the presence of high-pressure systems. As well as intense heat across the southern United States, particularly in Texas. This should lead to significantly increased demand for natural gas in the region. Conversely, weather systems will bring showers and more comfortable temperatures to the West and East coasts. The East Coast we be experiencing hotter temperatures before the relief of cooler weather in the 70s-80s range.

Technical Analysis

The Natural Gas market is currently exhibiting bullish sentiment. The 4-hour price of 2.757 is above the 50-4H moving average of 2.577, indicating strength and favoring further upward movement. Moreover, the market is trading on the strong side of former resistance, suggesting increased buying interest. The 14-4H RSI at 65.20 reflects neutral to bullish momentum, providing room for potential price gains.

Main support areas lie between 2.285 and 2.333, while the main resistance area is at 2.998. Traders should closely monitor price action, considering the bullish market sentiment and the breakout above former resistance levels.