Natural gas prices surge, may impact winter bills

NEW YORK — After years of unusually inexpensive levels, the price of natural gas in the United States has more than doubled since this time last year. In Europe and Asia, wholesale prices are more than five times what they were a year ago.

The surging costs have coincided with a robust recovery from the pandemic recession, with more homes and businesses burning all forms of fuel. That intensified demand is poised to contribute to higher heating costs in many areas of the world.

Having enjoyed a prolonged period of low prices, consumers of natural gas are facing the burden of far more expensive fuel — and the prospect of much higher heating bills this winter.

“Consumers got used to very low prices last year, because with the pandemic everything was shut down,” said Mark Wolfe, executive director of the National Energy Assistance Directors Association. “Now, everything’s coming back online, industry is returning and natural gas is being used again in very large quantities. And that’s pushing up the price.”

In Europe and Asia, some companies that rely on natural gas have been forced out of business because of the higher prices. Four small British energy companies failed in recent weeks. Fertilizer producers, which use natural gas as a feedstock, are struggling. So are heavy industries that require significant heat, such as aluminum or cement producers.

Power companies in Europe and Asia are engaged in bidding wars over shiploads of liquid natural gas, thereby driving up the cost. Prices are also spiking in the U.S., which converts some of its natural gas into liquid and ships it to Europe and Asia. Those higher costs are showing up in gas bills for consumers around the globe. Analysts expect those prices to rise further through winter, when customers are most reliant on the fuel.

The main reason natural gas prices have jumped is that demand for fuel has accelerated as economies have recovered from the damage caused by the pandemic. But there’s another key factor too: There’s simply less gas on the market.

The factors that have diminished the supply are varied. When the pandemic was raging, oil prices tumbled and producers ran low on money to drill. Once they curtailed drilling for oil, they also retrieved less gas, because most wells pump both oil and gas out of the ground at the same time.

What’s more, Europe burned through significant natural gas last winter to heat homes during frigid weather, leaving storage tanks with little fuel. Then the summer was less windy than usual, so wind turbines didn’t generate as much energy as expected. That, in turn, led nations to burn more natural gas, further depleting reserves.

At the same time, Russia reduced its natural gas supply to Europe, noted Carlos Torres Diaz, an analyst at Rystad Energy. All those factors combined to send natural gas prices in Europe skyrocketing to roughly $26 per million British thermal units, compared with just $4 at the same time last year.

A similar pattern occurred in China and Japan: Power plants burned more natural gas than usual to cool homes on a series of unusually hot days. Prices surged to $29 per million Btu in Asia, Rystad Energy calculated, from $5 a year ago.

Ira Joseph, an analyst at S&P Global Platts, noted that demand for liquid natural gas has been robust, even at much higher prices. In Japan, Pakistan, Bangladesh, Taiwan and Indonesia, prices are so high that power companies will likely burn oil instead, according to Rystad. For the earth’s environment, that could become an alarming trend.

The wholesale price of natural gas in the U.S. has exceeded $5, up from $2 to $3 during most of the past two years. That’s the highest price since 2014, though it’s below levels reached in the 2000s, when prices surpassed $10 per million Btu.