High natural gas demand on our doorstep

Mike Zaccardi, CFA, CMT

Record natural gas power burn may be in sight for the US power markets. Power burn is natural gas used as the fuel to run power plants to generate electricity. Hot summer temps and low gas prices is the recipe for high natural gas demand this time of year.

The latest temperature outlook published by the National Weather Service indicates that the upcoming 6-10 day period as well as the 8-14 day timeframe and even the week 3-4 outlook all feature extensive regions with warmer than usual risks.

There is a slight caveat to that that language though – like anything in today’s media, context is required. The ‘average’ is traditionally the 30-year average. In this case, the weather community uses the 1981 to 2010 period. Next year, it will shift to the 1991-2020 timeframe. And the most recent ten years have been very hot!

So the temperature anomaly maps will actually not be quite as dramatic when heat waves strike.

Back to the power markets – the heat in the near-term will hit the Northeast hard. The Northeast can burn a lot of gas given the huge population centers across the megalopolis.

If we really want to see record power burn, we need Texas to heat up. Dallas in July can easily feature afternoon high temperatures well in excess of 100 degrees. While the outlook does not suggest cool risks, it appears the major heat will not be found in the lone star state.

Natural gas prices for July delivery are near $1.70, pretty much record lows given the time of year. 25-year lows were put in place earlier this year at the $1.50 mark for the continuous prompt-month contract, but July and August contracts usually command a slight premium versus the low demand shoulder months of the spring and autumn.

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Map source: NOAA