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US natural gas prices have soared to their highest level in three years as the winter storm that hit the southern and eastern US over the weekend hampers production and increases heating and power demand.
Henry Hub futures prices for delivery in February surged to as high as $7.43 per million British thermal units on Monday, up 140 per cent since January 16. Spot prices at several locations reached $50 to $100/mBtu in northeastern states over the weekend and traded up to about $150 on Monday.
The jump in prices is expected to push up consumers’ gas and electricity bills, as Donald Trump’s administration faces criticism that it has failed to deliver on pledges to halve energy costs within a year of taking office.
Winter Storm Fern has driven up power demand to record levels. PJM, the largest grid operator in the US which serves more than 67mn people in the north-east and Midwest, has predicted a new winter demand record on Tuesday, while the Electric Reliability Council of Texas (Ercot) generated 48 gigawatts from natural gas on Monday, a record high.
“Prices are bounded by how much storage you have, and we’ve wiped out quite a bit from this weather,” said Eugene Kim, research director on Wood Mackenzie’s Americas gas research team.
Meanwhile, the freezing conditions have frozen pipelines which produce and transport natural gas, causing production to dip. Data from S&P showed a decrease of 9 per cent on Sunday, with declines concentrated in Texas and the middle of the country.
LNG feed gas, which is liquefied for exports overseas, dropped 30 per cent, as domestic prices rose above international rates, according to S&P.
“A lot of operators have decided to turn that gas back into the market to help with domestic needs,” said Matthew Palmer, head of Americas gas research at S&P Global Energy.
Electricity providers across the country are resorting to extraordinary measures to keep power on.
PJM has instructed power plants to gather additional natural gas supplies throughout the week to meet booming demand, and obtained permission to run power plants in the region at their maximum capacities regardless of air-quality concerns.
With natural gas production limited, New England has relied heavily on oil to meet power demand.
Ken Girardin, a fellow at the Manhattan Institute, said: “Cost and supply constraints on natural gas reaching New England means it’s preferable for plants that can burn oil to do so.”
Analysts at Jefferies said high gas prices could have knock-on effects on sentiment.
“Higher natural gas prices and consumption could lead to more political pushback on affordability and data centres,” they said.
Despite Trump’s campaign pledge to halve energy prices — which resonated with voters stung by high inflation during Joe Biden’s administration — costs have continued to climb above the rate of inflation since his election.
The cost of electricity and gas piped into homes increased 6.7 per cent and 10.8 per cent respectively in December, compared to a year earlier, data published by the Bureau of Labor Statistics shows.
The sudden drop in temperatures and scale of the winter storm caught many natural gas investors wrongfooted as they sought to cover bearish positions, said market observers.
Michael Alfaro, chief investment officer at Gallo Partners, a New York-based energy and industrials hedge fund, said: “Several colleagues of ours say they were caught off guard by the violent cold stretching coast to coast — a few of which had books positioned for a fade in natural gas prices.”
“Now we have another system on deck, which likely prompts a further price squeeze.”
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