Natural gas prices have already doubled this year. A hot summer can push them

Workers operate drilling rigs for the EBR Energy LP natural gas well near Columbus, Texas.

Scott Dalton | Bloomberg | Getty Images

U.S. natural gas prices have more than doubled since the beginning of the year, and they could rise by at least another 25% this summer.

In futures markets, gas prices rose 4% on Tuesday as hot spring weather in South America pushed a market that is already worried about tight supplies. The forecast indicates that warm weather will continue throughout the south.

Matt Palmer, senior director of natural gas for North America at S&P Global Commodity Insights, said, “Last month, there was no significant increase in production in the bottom 48 states of the United States.” “You see the export of LNG is coming to an end; the power burn from the power sector is really strong and the heat that we are seeing and hopefully the southern layers of the continent will see better than normal temperatures in May and June. This is a more expensive recipe.”

Natural gas futures were trading at around 30 8.30 per million British thermal units. [mmBtu], An increase of 137% for the year. A heat wave is spreading south, with temperatures above 100 degrees in some places. Texas, Oklahoma and Louisiana are forecast to record highs or break temperatures this week, according to the National Weather Service.

High natural gas prices are hitting U.S. businesses and consumers at a time when other energy prices are rising along with petrol and record diesel fuels. Palmer says utilities typically switch to coal for electricity when the price of natural gas rises and finds that coal is more expensive – the equivalent of $ 9 to $ 10 gas.

“The prospect of double-digit prices is getting stronger this summer,” Palmer said.

Russia’s aggression in Ukraine has led to a sharp rise in gas prices in Europe, as well as in the United States. Russia supplies about a third of Europe’s gas.

U.S. prices, however, are not directly linked to world markets, even as the country exports about 15% of its gas production in the form of liquefied natural gas. The price of LNG in Europe is almost four times higher.

U.S. production declined sharply during the epidemic, and since its resumption, it has been growing steadily. In February, monthly production was 115.2 billion cubic feet per day, down from 118.7 bcf in December, according to the latest official monthly data.

“We’ll definitely be in the top 10. I’ll keep $ 12 to $ 14 as the top band,” said John Kildoff, a partner at Again Capital. “It’s a product that does a lot of business parabolically. It’s no stranger to parabolic driving up and down. It’s incredibly volatile, and it also has the ability to reset. We can get it at $ 10 or $ 12 and if you have a cool August, You could be under $ 8 again. “

The supply in the US market is tight. The amount of gas in storage is unusually low and the cold spring weather and heat wave have created more demand than usual at this time of year. This has made inventory more difficult. Some gas is being set aside for next winter.

Kildoff says storage levels are 18% lower than last year and 16% lower than the five-year average. “Now you have extra pressure from LNG exports which makes sense,” he said. “By that I mean, it’s preventing the United States from oversupplying or from high levels of gas storage that will crush prices.”

Kildoff expects 90 bcf of gas to be injected into storage last week. The Energy Information Administration released its weekly report on supply on Thursday.

“We’re starting in a big hole,” he said. “We have to be like squirrels that push the acorns away, and as much as we have heat waves, which block the flow and lower the price. You have to see the triple digit injection.”

Warmer weather was expected, but Bespoke Weather said the models were “becoming more assertive about the return of strong heat as we move to the end of the month, at least in early June.”

Bespoke said total gas demand is expected to be higher than normal in the next 15 days. The firm noted in its Tuesday comment, “This is probably the base state for the summer season due to La Nina’s perseverance, where we are warmer than usual, with occasional variability sometimes closer to normal,” the firm noted in its Tuesday comment.

Analysts say the gas market is generally calm at this time of year, but Kildoff says price action this week could be a refuge for what summer could be like if temperatures are warmer than normal. He said gas prices were also supported by developments last weekend, when the Texas Electric Reliability Council asked consumers to save electricity after six power plants went down unexpectedly.

Kildoff said power problems in Texas could affect oil and gas production if they are repeated or sustained.

“In general, this is a very quiet time for the energy market,” said Rob Thumel, senior portfolio manager at TortoiseEcofin. “The month of May is usually quite beautiful. … I guess it’s an early dose of summer. If we keep seeing hot weather, it could have the same effect as very cold weather. The effects are going to be felt.”

“Usually the release valve is coal. It’s not there now. … Consumers are at the mercy of Mother Nature right now for the summer,” Thumel said.

Thummel said the futures market estimates that gas will remain in the $ 8 range for about a year and will fall below $ 5 again next April. He said that considering the state of the industry, he thinks the price is too high.

“$ 5 is probably a better reflection of the current environment. We probably have ভূ 3 or higher geopolitical risks,” he said.

Thumel says U.S. production is growing, and companies with pipelines like Kinder Morgan are expanding power from the Permian Basin area of ​​Texas.

The United States wants to send more natural gas to Europe to help meet Russian gas shortages, but also expands both export and import capacity. Over the next few years, exports will grow by about 20% of U.S. production, Thamel said.

It should help support US prices.

“At this time last year [the price] “It was under $ 3,” Kildoff said.

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