US natural gas rises 81% in 7 weeks, sets new 14-year high, calms in June and July
Not All Commodities Go Down: The Whac A Mole Inflation Game.
Written by Wolf Richter for WOLF STREET.
here we go again. This morning, the notoriously volatile natural gas futures contract, which has stalled many hedge funds over the years, jumped to nearly $10 per million British thermal units and is currently trading at $9.75, the highest since July 2008, up 146%. It’s up 350% from three years ago, topping a string of hikes that began in early July, just when people got used to lower commodity prices.
The price has now regained all of its slump that began on June 8, when a fire destroyed the Freeport LNG plant in Texas, reducing LNG export capacity by 17%. The plant is due to resume exports at partial capacity in October. The damaged part of the plant will take longer.
The closure of the LNG export facility removed some demand from the United States, and the plunge in prices was a classic, unexpected backlash that has now been scrapped. Since its lowest point on June 30 ($5.39), the price has increased by 81%:
The drop in natural gas futures prices in June and July was one of the reasons cited due to inflation in the US rising to a peak. Utility natural gas delivered to homes accounts for about 1% of the total CPI. In the July CPI reading, gas pipes to the home fell 3.6% from June, the first monthly decline since January, and a welcome dip after gains in previous months, including +8.2% in June from May. , and +8.0% in May from April.
Sharp rises in futures prices do not immediately translate into higher natural gas prices at home, but they do happen eventually. This is another example of the Whac A Mole inflation game, where price spikes are popping up here and there again.
Natural gas also fuels electricity prices through power generators, food prices through fertilizers made from natural gas, and prices for all kinds of other products.
The two-year increase in natural gas prices was underpinned by US LNG exports, which have been booming, with new LNG export terminals running one after another – seven since 2016. A small LNG terminal in Kenai, Alaska, has been operating for years . LNG exports have increased the demand for US natural gas and increasingly linked US natural gas prices to global LNG prices.
For natural gas-fired power plant operators, struggling to meet demand for air conditioners, the blow to natural gas export capacity this summer came at just the right time, and the drop in natural gas prices over the summer has been a crisis. A gift from God. But this is over now.
LNG exports have been on the rise since 2016. The United States also exports natural gas via pipeline to Mexico and to a lesser extent Canada, but these pipeline exports have been roughly flat over the past few years. What added new demand on a large scale in the US are LNG export terminals.
The Energy Information Administration released LNG export data through May, which does not yet include the potential drop in exports in June and July due to the shutdown of the Freeport LNG terminal. June export data will be released at the end of August:
But even at today’s price, natural gas futures are much lower than they were during the spikes in 2005 and 2008, and a bit higher than they were in 2000. At the time, there was talk of a shortage of natural gas and LNG terminals being built. Import to import expensive LNG into the United States.
This incident was followed by a fracking boom, which turned the United States into the world’s largest producer of natural gas, causing natural gas prices to collapse in the United States, and leading to bankruptcy court for many of the largest natural gas fracking units, including the Chesapeake.
Now the US natural gas market is linked to global markets through extensive export terminals that eliminate much of the price difference between US natural gas prices and international LNG prices. Welcome to the old and new world of high natural gas prices.
In light of this, the price of natural gas today in the United States is not that extraordinary, and is still much lower than in other parts of the world:
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