Natural gas futures climbed on Friday as updated weather forecasts pointed to above-average temperatures across large parts of the United States over the coming weeks, fueling expectations that higher air-conditioning usage will lift gas-fired power generation demand. At the same time, electricity demand in Texas is poised to potentially set consecutive records, reinforcing the demand outlook for the natural gas market.

During early Friday trading on the New York Mercantile Exchange (NYMEX), U.S. natural gas futures for September delivery rose 5.4 cents, or roughly 2%, to settle at $2.787 per million British thermal units. The latest weather projections emerged as the primary catalyst behind the price uptick. According to data from Commodity Weather Group, temperatures through September 4 are expected to run above seasonal norms across Texas, the U.S. Southwest, and the western interior regions.

The persistent heat is clearly escalating electricity demand in Texas. The Electric Reliability Council of Texas (ERCOT), which manages the state's largest power grid, forecasts that peak demand each day from Friday through Tuesday will surpass the all-time high recorded in July this year. As households and businesses crank up air conditioning, rising power consumption typically boosts natural gas usage at gas-fired plants, making extreme heat a key near-term support for gas demand.

Beyond weather, new pipeline capacity in West Texas is also reshaping the local supply-demand landscape. The combination of high temperatures and added pipeline takeaway capacity is allowing more Permian Basin natural gas to flow out of the region, easing local supply pressure and lifting spot prices at the key Waha Hub trading point. This week, average Waha cash prices have topped $2 per million British thermal units. In the past, Waha prices were long weighed down by oversupply as Permian gas output grew rapidly without enough pipeline capacity to move it out.

However, the new pipeline capacity also carries regional price implications. As more Permian gas is transported into East Texas, rising supply in neighboring areas is exerting downward pressure on the Henry Hub benchmark located in southern Louisiana. This means the new pipelines are, on one hand, relieving West Texas oversupply and supporting Waha prices, while on the other hand funneling more supply to the U.S. Gulf Coast market, thereby increasing supply around Henry Hub.

On the broader supply-demand front, U.S. natural gas output remains robust. Data shows that dry gas production across the Lower 48 states is expected to reach approximately 113.1 billion cubic feet per day on Friday, up 4.4% year-over-year, while total gas demand is projected at about 80.9 billion cubic feet per day, up 2.7% year-over-year. On exports, dry gas flows to Mexico are estimated at roughly 8.3 billion cubic feet per day, up 2% from the prior week. Meanwhile, gas deliveries to U.S. liquefied natural gas (LNG) export terminals are projected at about 17.7 billion cubic feet per day, down 2.6% week-over-week, partially offsetting demand gains from the hot weather.

Overall, the hotter outlook over the coming weeks and the possibility of record-breaking Texas power demand are key near-term supports for U.S. natural gas prices. Still, with domestic production up more than 4% year-over-year and LNG terminal demand easing, the supply side remains ample. Whether prices can sustain further gains will ultimately hinge on how long the heatwave lasts and the actual scale of electricity demand growth.