Rising US Heat Sparks Surge in Natural Gas Prices

Natural Gas Prices Rise on Forecasted Heat and Supply Expectations

Natural gas prices saw a significant increase on Wednesday, with the September Nymex natural gas contract closing up by 0.067 dollars, or 2.23%. This marked the second consecutive day of gains, driven by expectations of rising demand due to forecasted hot weather over the next week and into mid-August.

According to forecasts from Atmospheric G2, temperatures across much of the United States are expected to be warmer than usual between August 11-15. Additionally, the eastern two-thirds of the country is anticipated to experience higher temperatures during the period of August 16-20. These conditions are likely to increase electricity demand as consumers rely more on air conditioning, which in turn boosts the need for natural gas.

In addition to the weather-related demand, natural gas prices also received support from expectations of a smaller-than-normal increase in weekly natural gas supplies. The consensus among analysts suggests that the weekly natural gas inventories for the week ended August 1 rose by 9 billion cubic feet (bcf), which is below the five-year average of 29 bcf for this time of year.

Recent Volatility in Natural Gas Prices

Earlier in the week, natural gas prices had dropped to a 3.5-month low on the back of increased U.S. natural gas production and the expectation of even higher output in the near term. According to Baker Hughes, the number of active U.S. natural gas drilling rigs in the week ending August 1 increased by two, reaching a 2-year high of 124 rigs.

This rise in drilling activity has contributed to a surge in production. On Wednesday, Lower-48 state dry gas production was reported at 107.9 bcf/day, representing a 5.0% year-over-year increase. Meanwhile, Lower-48 state gas demand decreased by 6.8% year-over-year to 76.9 bcf/day.

Another factor influencing the market was the increase in LNG net flows to U.S. LNG export terminals. On Wednesday, these flows were estimated at 16.1 bcf/day, a 20.4% weekly increase.

Electricity Output and Market Implications

An increase in U.S. electricity output has been positive for natural gas demand from utility providers. The Edison Electric Institute reported that total U.S. (lower-48) electricity output for the week ended August 2 rose by 0.9% year-over-year to 99,367 gigawatt hours (GWh). Over the past 52 weeks, U.S. electricity output increased by 2.7% to 4,259,351 GWh.

Despite the recent price increases, the market remains sensitive to supply and demand dynamics. Last Thursday’s EIA report showed that natural gas inventories for the week ended July 25 rose by 48 bcf, exceeding both the consensus estimate of 41 bcf and the five-year average of 24 bcf for the same period.

As of July 25, natural gas inventories were down 3.9% year-over-year but remained 6.7% above their five-year seasonal average, indicating adequate supply levels. In Europe, gas storage was reported at 70% full as of August 4, compared to the five-year seasonal average of 78% for this time of year.

Drilling Activity and Long-Term Trends

Baker Hughes also reported that the number of active U.S. natural gas drilling rigs in the week ending August 1 increased by two, reaching 124 rigs—the highest level since 2023. Over the past ten months, the number of gas rigs has risen from a four-year low of 94 rigs reported in September 2024.

These trends suggest that the natural gas market is undergoing a shift, with increased production and drilling activity potentially affecting future price movements.

Additional Insights

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