US Natural Gas Spikes 81% in 7 Weeks, Hits New 14-Year High, Unwinds Plunge in June and July

Not All Commodities Plunge: Whac A Mole Inflation Game.

By Wolf Richter for WOLF STREET.

Here we go again. This morning, notoriously volatile natural gas futures, which have taken down many hedge funds over the years, jumped to nearly $10 per million Btu and are currently trading at $9.75, the highest since July 2008, up 146% from a year ago, and up 350% from three years ago, to cap a series of spikes that began in early July, just when the people have become accustomed to falling commodity prices.

The price has now recovered all of its plunge that began on June 8, when a fire damaged and shut down the Freeport natural gas liquefaction plant in Texas, reducing LNG export capacity by 17% . The plant is expected to resume exports at partial capacity in October. The part of the plant that has been damaged will take longer.

The shutdown of the LNG export facility removed some demand from the United States, and the price crash was a classic knee-jerk reaction that has now been undone. Since the June 30 low ($5.39), the price has climbed 81%:

The drop in natural gas futures prices in June-July was one of the reasons given for the spike in inflation in the United States. Natural gas from utilities delivered to homes represents about 1% of the total CPI. In July’s CPI reading, utility gas delivered to homes fell 3.6% from June, the first month-over-month decline since January, and a welcome relief from the peaks of previous months, including +8.2% in June compared to May. , and +8.0% in May compared to April.

Surges in futures prices do not immediately translate into higher natural gas prices in the country, but they do eventually. And this is another example of the Whac A Mole inflation game, with price spikes popping up here and there again and again.

Natural gas also fuels electricity prices through generators, food prices through fertilizers made from natural gas, and prices for all sorts of other commodities.

The two-year natural gas price spike was fueled by booming US LNG exports, with new LNG export terminals commissioned one after the other — seven since 2016. A small LNG terminal in Kenai, Alaska has been operating for years. LNG exports have increased demand for US natural gas and have increasingly tied US natural gas prices to world LNG prices.

For natural gas power plant operators struggling to meet air conditioning demand, the impact on natural gas export capacity this summer came just in time, and the fall in the price of natural gas over the summer was a godsend. But it is now over.

LNG exports have skyrocketed since 2016. The United States also exports natural gas by pipeline to Mexico and, to a lesser extent, to Canada, but these pipeline exports have remained roughly flat over the past few years. last years. What has added new large-scale demand in the United States are LNG export terminals.

The EIA has released LNG export data through May, which does not yet include the potential decline in exports in June and July due to the closure of the Freeport LNG terminal. It will release June export data at the end of August:

But even at today’s prices, natural gas futures are well below where they were at the peaks of 2005 and 2008, and just slightly above where they were in 2000. At the time, there was talk of a shortage of natural gas and LNG. import terminals have been built to import expensive LNG into the United States.

This episode was followed by the fracking boom, which made the United States the largest producer of natural gas in the world, which caused the price of natural gas in the United States to collapse, sending to a court out of business many of the biggest natural gas frackers, including Chesapeake.

And now the US natural gas market is connected to world markets through large-scale export terminals that eliminate much of the price difference between US natural gas and world LNG prices. So welcome to the new old world of higher natural gas prices.

Seen in this light, the current price of natural gas in the United States is not that extraordinary, and it is still much lower than in many other parts of the world:

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