That Extreme Heat Hasn't Budged Natural-Gas Prices; With glut from warm winter, power-generation fuel costs 60% less than last summer

Americans are burning more natural gas than ever to stay cool this summer. Unlike the past two summers, when sweltering weather sent gas surging, the continuing heat wave has hardly moved prices for the power-generation fuel.

Benchmark natural-gas prices have stayed in a tight range that is roughly 60% lower than a year ago, when prices exploded to shale-era highs . Prices are 30% less than in July 2021.

Bill payers can thank the unusually warm weather this past winter for leaving a lot of gas unburned. As well, strong renewable-electricity generation has taken pressure off gas-fired power plants in some of the hottest parts of the country, including California and Texas.

Natural-gas futures for August delivery ended Wednesday at $2.603 per million British thermal units, down 67% from a year earlier. Futures have shed 7% so far in July, when they usually rise.

On-the-spot prices in some big markets, including Chicago and New York, have been even cheaper than the national benchmark, which is set at the Gulf Coast hub near export terminals and gas-consuming chemical plants. Prices for coal—competition for gas in many power markets— have plunged from record highs notched last year.

If stifling heat lingers into August, prices could reach $3, said Joe DeLaura, senior energy strategist at Rabobank. Yet he expects a quick retreat and that prices should trade between $2.25 and $2.85 until winter.

"Hedge fund guys see $2.90, $3 as the upper end," DeLaura said. "If we get around $3, everyone is going to sell."

Bank of America analysts predict summer prices will average $2.75.

Goldman Sachs forecasts $2.90 for the remainder of the season. Trading firm Ritterbusch & Associates suggested this week that clients liquidate bets that prices will rise in August.

The big difference between now and the past couple of summers is that there is much more gas available.

The volume of gas in U.S. storage caverns last week was 14% greater than the five-year average, according to the Energy Information Administration. July inventories haven't been so high relative to average since 2016, when the market was burning off a glut following a warm winter that was attributed, as now , to the El Niño climate pattern .

In 2021, Texas froze over , boosting demand and icing over a lot of wells. Gas stockpiles were much smaller than what they had averaged over the previous five years by the time air conditioners were turned on. Scorching weather kept depleted caverns from refilling enough before winter, when gas is needed to heat homes. Prices rose until they were high enough to prompt more drilling.

Last year, Russia's invasion of Ukraine shocked energy markets and sent European buyers racing to replace Russian gas. Those buyers bid up cargoes of liquefied natural gas, or LNG. Prices climbed at home to compete with the export market.

U.S. LNG exports declined when a big Texas export facility caught fire in June, knocking it out of commission until earlier this year. Maintenance shutdowns at other export facilities have lately decreased shipment volumes.

Europeans aren't buying like they were last year. Between their LNG binge, a winter to match North America's for mildness and extraordinary energy-conservation measures , Europe has full tanks. Natural-gas storage in the European Union is nearly 80% full, according to Commerzbank analysts.

U.S. producers have idled rigs in gas-drilling regions, including Appalachia and Louisiana's Haynesville Shale. There were 133 rigs drilling specifically for natural gas last week, down 17% from 161 in late April, according to oil-field services firm Baker Hughes.

The Federal Reserve Bank of Kansas City said last week that drillers polled in its district said, on average, that they need $3.49 per million British thermal units to drill profitably in gas fields from Wyoming to Oklahoma.

The EIA said it expects daily U.S. output to hit a record this month. But it forecasts lower production in August when declines in Oklahoma, Appalachia and Louisiana outpace gains in places such as West Texas, where gas is unearthed as a byproduct of oil drilling.

Last July set a record for the amount of gas burned to produce electricity. The EIA said it expects consumption to rise 4% from last year, in part due to newly operational gas-fired power plants. The EIA estimates gas will account for 46% and 47% of all power generation in July and August, respectively.

Despite the grid's greater dependency on gas, analysts say added wind and solar production capacity—and cooperative weather—have helped keep fuel prices from running up.

On Tuesday, for instance, Texas solar-power production set a daily record, keeping the least efficient gas plants offline and local gas prices below the national benchmark, according to EBW Analytics Group.

"We're at the point where renewables are able to smooth out those spikes if they are available," Rabobank's DeLaura said.