Natural gas prices soar as timid shale producers hold back

US natural gas prices, reaching their highest level in more than a decade, remain a fraction of the surge seen in Europe.

But the prospect of further price hikes translating into higher utility bills this winter, when demand is highest, could shock U.S. homes and businesses who have become accustomed to a long period of low gas prices. natural thanks to the shale boom.

The issue of high energy prices has more widely caught the attention of the Biden administration, which fears political damage ahead of next year’s midterm elections and a backlash against its agenda to move away from the saving fossil fuels.

“While natural gas prices may not be as visible to consumers as retail gasoline prices at the pump, any persistent spikes will affect consumers already struggling with vastly rising prices,” said Bob McNally , former senior energy official in the George W. Bush administration. He now heads the Rapidan Energy research group. “The fact that we are in much better shape than Europe will not be of great comfort to the Biden administration if this winter is cold.”

Natural gas prices continue to climb in the United States as supply struggles to keep up with the recovery in demand following the coronavirus pandemic. Demand will only increase as temperatures start to drop across the country and heaters are turned on in homes.

With national storage stocks below five-year average levels, benchmark US natural gas prices have already doubled from a year earlier, approaching $ 6 per million UK thermal units.

But gas at $ 6 / MMBtu remains low on a historic basis and is only a sixth of the price in Europe.

Before the shale boom, double-digit prices in the United States were the norm.

“Prices are stable from history,” said Richard Meyer, vice president of energy markets at the American Gas Association. “Sometimes I’m afraid we have short memories of how markets behave. It’s always a well-functioning market.”

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The risk that customers will experience pain from price spikes is much lower than in Europe, despite the fact that the US economy has come to depend on natural gas as a source of electricity and heat.

This is because our large domestic gas supply from shale drilling provides a layer of protection, while Europe has to import most of its gas.

But despite the robust availability of domestic oil and gas, the biggest looming question that could determine if prices go down is whether U.S. producers are reacting as one would generally expect with high prices.

U.S. natural gas producers are reluctant to drill more because they face increasing pressure from Wall Street to exercise capital discipline. Additionally, investors have turned to fossil fuels in response to public pressure to tackle climate change.

“If you say, ‘I guess we’re going to have low prices forever because we have all these molecules in the United States,’ that’s part of the story, but without investment it won’t be true, ” he said. said Kevin Book. , Managing Director of ClearView Energy Partners, a research group.

McNally said producers are wary of previous spending during price spikes that have put them in debt.

“Producers won’t want to inadvertently oversupply the market, which has seen a glut in recent years,” McNally said. “They know from hard and recent experience that gas prices can fall as fast as they rise.”

Industry groups, however, expect the market to be well supplied.

During the group’s presentation of its annual winter outlook, David Attwood, president of the Natural Gas Supply Association, said this week that he expects U.S. shale producers to pull out in response to high prices.

“I firmly believe the market is working,” Attwood said. “There is no doubt that the market is giving strong signals for production to increase.” “This supply is there and will meet the demand,” added Attwood, who is also vice president for Americas Trading at ExxonMobil.

Book agreed that producers could not resist this price point.

“There is money to be made, and they will try to do it,” he said.

Whether a new supply can be brought online in time to offset higher demand will depend on how severe the winter is, which would affect the amount of heat people heat their homes and businesses heat their offices.

“If we are in T-shirts in December, we will see the market move in one direction, and if we have significant cold spells, the market will move in another direction,” said Meyer.

Despite this, soaring natural gas prices have already prompted a trade group representing manufacturers to ask Energy Secretary Jennifer Granholm to stop U.S. exporters from shipping liquefied natural gas overseas in an effort to preserve supply for home use.

The United States, in recent years, has become a major exporter of LNG after previously being an importer before the shale boom.

US LNG exports are particularly booming with export facilities, or liquefaction terminals, operating near full capacity as natural gas sells for a higher price in European and Asian markets facing gas shortages. ‘supply.

McNally warned that a decision to ban natural gas exports to reduce domestic prices would backfire.

“The export ban may temporarily lower prices, but by severing contracts and trust with foreign customers, investors would withdraw from new investments in US natural gas, increasing the likelihood of a price spike.” , McNally said.

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Key words: News, Energy and environment, Natural gas, Propane, Climate change, Inflation, Coronavirus, Businesses, White House, Fossil fuels, Consumers, Elections 2022, Europe

Original author: Josh siegel

Original location: Natural gas prices soar as timid shale producers hold back