Natural gas prices have doubled this year and are expected to continue to rise, leading to higher winter heating bills for some consumers and higher energy costs.
Natural gas is plentiful in the United States and has been cheap for years, so this year's price hike is sensational. It has also lifted shares in natural gas companies such as EQT, Range Resources, Cabot Oil and Gas and Antero Resources.
On the futures market, the natural gas contract for October surpassed $5 per million British thermal units, or MMBTus, for the first time since February 2014. In addition to demand for electricity and heat, natural gas is an important raw material and is used in the processing of chemicals, fertilizers, paper and glass, among other products.
"We have not had a limited supply of natural gas for many years. We're planning for it this year," said John Kilduff, partner at Again Capital.
Natural gas prices have been trapped in a perfect storm of declining supply and rising demand. Prices rose primarily because unprecedented warmth boosted demand for air conditioning in the US, especially in the North West. As a result, less gas was stored for the winter months, during the key summer injection period.
Add to that the cold winter weather and prices could jump even more. "Anything closer to [or colder than] the full average standard deviation form is likely to cause prices to spike, leading to a drop in gas demand above $10/mmBtu. USD/mmbtu," Goldman Sachs analysts said. The last time gas prices were this high was in 2008.
Kilduff said natural gas is closely tied to the economy, and for a long time prices didn't matter. Now utilities will pay more, as will some consumers who have real-time pricing schemes. "You could easily see it reaching $6 and you could see it reaching $8-10," he said. "Any cold snap at the start of the season fuels this thing."
The upward pressure on gas prices is global and because the US is an exporter, prices in North America are now more dependent on prices in other markets.
"We've seen this throughout last year with the pandemic. We saw that natural gas prices around the world were $2. It was $2 in the US, $2 in Europe and $2 in Asia," Cheniere Energy CEO Jack Fusco told Thai https://newexness.com/exness-download/. "As the economy began to recover and countries and companies around the world decided that natural gas was the fuel of choice to transmit clean energy, demand soared."
Fusco said the price of the same gas, which is $5 in the US, is now $20 or more in Europe and Asia. He also said his company, which exports liquefied natural gas, will sell 90% of its production over the next 20 years.
Now the US industry is also suffering from declining production due to Hurricane Ida, with 77.3% of production in the Gulf of Mexico still shut in. According to the Energy Information Administration, US storage levels are now 7.4% below the five-year average and 16.8% below last year's level.
The dynamics of rising demand and falling inventories have attracted investors to natural gas producer stocks as well as the US Natural Gas Fund ETF .
"I look at the natural gas situation. Storage levels are well below historical norms," said Leon Cooperman, chairman and chief executive of the Omega Family Office. Cooperman told CNBC on Thursday that his biggest positions are opposite assets in the energy market.
Natural gas prices are rising as the Biden administration pushes to make the electricity market more reliant on renewable energy . On Wednesday, the White House called for solar power to power almost half of the electricity grid by 2050. Right now, that's just 3% of the energy supply.
But natural gas is likely to remain an important fuel for years to come. The EIA's short-term forecast states that natural gas should provide 35% of electricity generation in 2021 and 34% in 2022. The government predicts that the average price of natural gas this year will be $4.69 per million Btu.
The EIA said the share of natural gas as a fuel for generation will fall next year due to an expected increase in renewable sources as well as coal.