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Flames from a flaring pit near a well in the Bakken Oilfield. The main component of natural gas is methane, which is odorless when it comes straight out of the gas well. In addition to methane, natural gas generally contains other hydrocarbons such as ethane, propane, butane, and pentanes.
Orjan F. Ellingvag | Corbis News | Getty Images
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 costs for electric utilities.
Natural gas is plentiful in the United States and has been cheap for years, so the price hike this year is striking. He also increased the shares of companies specializing in the production of natural gas, such as EQT, Range Resources, Cabot Oil and Gas and Antero Resources.
In the futures market, the natural gas contract for October rose above $ 5 per million UK 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 haven’t had a shortage of natural gas for years. We expect that this year,” said John Kilduff, partner of Again Capital.
Natural gas prices have been caught in their own perfect storm of tight supply and growing demand. Prices rose, first because unprecedented heat fueled demand for air conditioning in the United States, particularly in the Northwest. As a result, less gas was stored during the winter months, during the key summer injection period.
Add to that any winter colder than normal and prices could go up further. “Anything that comes close to [or colder than] an average in the form of a full standard deviation would probably trigger a price spike that would destroy demand with gas above $ 10 / mmBtu, ”Goldman Sachs analysts note. Gas prices were also high in 2008.
Kilduff said natural gas was 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 systems. “You could easily see it hitting $ 6 and you could see it hitting $ 8 to $ 10,” he said. “Any cold outbreak early in the season will add fuel to this thing. “
The upward pressure on gas prices is global, and since the United States is an exporter, prices in North America are now more influenced by prices in other markets.
“We saw it throughout last year with the pandemic. We saw natural gas prices around the world at $ 2. It was $ 2 here in the United States, $ 2 in Europe and 2 $ in Asia, “said Jack Fusco, CEO of Cheniere Energy. CNBC. “As economies have started to recover and countries and businesses around the world have decided that natural gas is the fuel of choice for clean power transmission, demand has just skyrocketed.”
Fusco said the price of the same gas which is $ 5 in the United States is now $ 20 or more in Europe and Asia. He also said his company, which exports liquefied natural gas, is sold 90% of its production for the next 20 years.
Today, the US industry is also suffering from a drop in production due to Hurricane Ida, with 77.3% of Gulf of Mexico production still blocked. average and 16.8% below last year’s level at the same date.
The momentum of rising demand and falling inventories has drawn investors to stocks from natural gas producers, as well as the United States Natural Gas Fund ETF.
“I’m looking at the natural gas situation. Storage levels are well below historical standards,” said Leon Cooperman, president and CEO of the Omega Family Office. Cooperman told CNBC on Thursday that his main positions were cross-holding holdings in the energy market.
Natural gas prices are skyrocketing as the Biden administration pushes for increased reliance on renewables in the electricity market. On Wednesday, the White House called for solar energy to power nearly half of the electricity grid by 2050. It now represents only 3% of the electricity supply.
But natural gas will likely remain an important fuel for years to come. The EIA, in its short-term outlook, said natural gas is expected to provide 35% of electricity production in 2021 and 34% in 2022. The government predicts that the average price of natural gas this year will be 4 , $ 69 per mmBtus.
The EIA said the share of natural gas as production fuel will decline until next year due to the expected increase in renewable sources, but also coal.
“Due to the expected rise in natural gas prices, the expected share of coal-fired power generation increases from 20% in 2020 to around 24% in 2021 and 2022,” according to the EIA. “New solar and wind power generation capacity additions are somewhat offset by reduced hydroelectric generation this year, bringing the expected share of all renewables in US power generation to 20%. on average in 2021, roughly the same as last year, before dropping to 22%. % in 2022. “
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