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Prices of natural gas in the United States are projected to climb at least 25% higher than what it is now due to hotter months.
The current price of natural gas has been increasing, even more than doubled, amid the rising tensions between Ukraine and Russia. This Tuesday, the market prices of gas went up 4% higher. Analysts and market experts charge the continued price increase to the hot spring weather in Southern US. Apart from the intense heat, forecasted to continue for several months, the bottom part of the US is also experiencing supply shortages.
Senior Director at the North American natural gas in S&P Global Community Insights Matt Palmer said that considerable evidence dictates higher prices of natural gas in the coming months.
“You’re seeing exports running full out on LNG; power burn from the power sector… layer in the heat we’re seeing and the expectation that the southern tier of the continent in May and June will see well above normal temperatures. That’s a recipe for higher prices.”
The National Weather Service surmises record-breaking temperatures in several parts of the US, including Oklahoma, Louisiana, and Texas.
The expected rise in natural gas prices is coupled with the crises of gasoline and diesel supplies. The developments primarily affect businesses and consumers who depend on transporting goods and services and other jobs that need these raw materials to function.
Palmer explained that in the face of these challenges come forth alternatives like coal. However, they found that turning to coal is way more expensive. Palmer further said that the chances of prices surging is “getting stronger by the day.”
While the US is only partially dependent on gas imports before its own fuel industry, the prices went up due to the pandemic. However, industries are now starting to get back on track, albeit slowly.
Other regions in the globe, particularly Europe, depend highly on the exports from Russia (about a third of Europe’s supply). However, with ongoing conflict, Europe is expected to suffer skyrocketing prices as the supply chain gets disrupted.
Rapid changes in climatic conditions gravely affected the supply of gas in the US. The cold winter days, immediately followed by a heatwave, meant for higher demand. The increasing demand is coupled with a low monthly production rate – from 118.7 cubic feet per day to only 115.2 billion in February. According to recent inventories, supply reserves set aside for the next winter have already been used due to the higher-than-normal demand in the market.
Weather firm Bespoke Weather warned suppliers that the total gas demand would increase in the next 15 days. The firm further noted that the projection is highly likely given “the persistence of La Nina, where we are skewed hotter than normal, with occasional variability back to just near at normal times.”
Rob Thummel, a senior portfolio manager at TortoiseEcofin said that the supposed “calm time for energy markets” during May is becoming the opposite. “I guess it’s an early dose of summer. If we continue to see hot weather, that is likely to have the same effect as extremely cold weather. It’s going to have an impact,” Thummel concluded.
However, Thummel is confident that the lack of supply will eventually be addressed due to several companies now doubling efforts to resume operations.
Opinions expressed by NY Weekly contributors are their own.
