Americans should brace for higher expenses when temperatures drop this fall and winter: The cost of natural gas is up 180%
The risk is that an early winter or extremely cold fall temperatures will force households to crank up the heat. That would further shrink the nation’s below-average stockpiles of natural gas and could lift prices even higher.
“If we get an early frost, it could get ugly. It could get ugly fast,” said Robert Yawger, director of energy futures at Mizuho Securities.
“This would be bad enough even in normal times. But now there is this general fear about inflation,” said Robert McNally, president of consulting firm Rapidan Energy Group.
The American Gas Association, which represents natural gas utilities like Con Edison, noted that “natural gas utility customers are not paying the day-to-day prices for natural gas that we see in the headlines,” spokesperson Jake Rubin said in a statement.
That’s because, AGA stressed, its members buy gas through long-term contracts that lock in prices and shield customers from some of the volatility. Rubin added that utilities augment winter supplies with storage of gas purchased months earlier.
‘Disastrous’ gas crisis in Europe
“It’s disastrous,” McNally said.
“There’s no way we’re running out of natural gas. We’re going to survive,” Yawger said.
Supply can’t catch up with demand
So why have natural gas prices gone up so sharply? The central problem is that while economic activity bounced back, natural gas production did not. That means demand is coming back faster than supply, forcing prices to go higher.
Demand was further boosted by heatwaves across the country this summer. Hot temperatures drove up air conditioning usage and electricity demand.
The situation has been exacerbated by unplanned production outages in Norway and Russia as well as by Hurricane Ida, which knocked offline the vast majority of the Gulf of Mexico’s oil and gas production.
‘Perfect storm’
US supplies have been whittled down further by strong demand from overseas amid high international prices. US exports of liquefied natural gas are expected to average 9.6 billion cubic feet per day this year, up 48% from a year ago, according to the EIA.
And then there’s the role of hedge funds and other big money traders on Wall Street. Yawger said speculators jumped in to bid natural gas prices higher when they realized storage levels were unusually low.
“It’s been a perfect storm, with specs jumping in to take full advantage of this. It’s spec nirvana,” he said.
The good news is that some on Wall Street argue the natural gas spike may be getting out of hand.
Last week, Bank of America wrote that the winter risk premium built into natural gas prices has “reached excessive levels.” The bank expects natural gas prices to drop during the final three months of the year and go lower next year.
The energy transition won’t be easy
The natural gas price spike comes at a tricky time for governments around the world. Not only are they dealing with elevated inflation, global leaders are also trying to transition away from fossil fuels.
Today’s high energy prices are a painful reminder of how addicted the world economy remains to fossil fuels — and how difficult, and potentially unpopular, it will be to wean off them.
