Natural gas price jump may inflame inflation woes
It may take time to hit consumers’ wallets, could be noticeable this winter
It’s not just gas prices at the pump that are rising. The cost of natural gas has spiked this year, too, creating another concern for consumers as inflation lingers at a 40-year high.
The benchmark price for U.S. natural gas jumped to the highest level since 2008, closing at $7.82 per million British thermal units on April 18. Prices have since eased – settling at $6.67 this Monday – but remain at levels not seen in more than a decade.
Though this won’t immediately affect consumers’ wallets, experts say it could lead to higher heating costs in winter 2023.
In certain regions of the country, “a double-digit percentage increase is not out of the question” if high prices persist, says Eugene Kim, a research director focusing on natural gas with energy consultancy Wood Mackenzie.
Natural gas is a fossil fuel source of energy. Most U.S. natural gas is used for heating and generating electricity, but the commodity can also be used to produce materials and chemicals.
The benchmark price for U.S. natural gas has jumped more than 80% so far this year, compounding inflationary concerns. Experts point to a shift in supply and demand as the culprit.
In previous years, natural gas supply had “vastly” outpaced demand in the U.S., allowing prices to remain low, according to Eli Rubin, a senior energy analyst at EBW AnalyticsGroup, an energy market advisory service. Now, the supply-and-demand dynamic has flipped.
The war in Ukraine has exacerbated demand now that the U.S. is sending more liquified natural gas to Europe to replace Russian supplies. This comes after a record-high year for U.S. exports in 2021.
Rubin said the market is uneasy with the supply outlook for next winter.
Typically, utilities inject natural gas into storage April through October. That buildup of natural gas provides consumers and industries with additional supply during the winters when temperatures drop and natural gas demand and prices tend to peak.
But a lingering cold wave across the Northeast has kept consumers’ heaters on longer this year, further dwindling levels of natural gas in storage. As of April 15, those levels have dropped 23% year over year.
“We’re way behind in storage, which is going to be problematic,” said Robert Yawger, director of energy futures at financial company Mizuho. “Producers are really going to have to step it up.”
Yawger expects storage levels to remain low this year unless there is a “really cool summer” that drives down energy demand. But with climate change driving record-high temperatures, experts say, cooler temperatures aren’t likely.
While power plant owners in the past were able to switch to coal to help alleviate rising natural gas prices, the decline of coal production has left utilities with few alternatives.
“Our natural gas bills have already started to go up. They’re going to continue to go up. ... I think this is the way it’s going to be for a couple of years.”
Robert Yawger Director of energy futures at financial company Mizuho