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Natural gas prices have already doubled this year. A hot summer could push them even higher


A drilling rig is used by workers to drill a natural gas well for EBR Energy LP near Columbus, Texas.

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The U.S. natural-gas prices have more than doubled in the past year. And this summer, they could soar by at least 25%.

Gas prices rose 4% in the futures market Tuesday due to hot spring weather across the Southern U.S., which pushed a market already worried about low supplies. Warmer weather is expected in the South.

“In the last month, there has not been a meaningful uptick in U.S. lower 48 states production,” said Matt Palmer, senior director North American natural gas at S&P Global Commodity Insights. Exports are running high on LNG. Power burn is strong in power sectors. This heat layer adds to the hot temperatures and we expect that southern continent will experience well above-normal temperatures in May and June. This is a recipe to higher prices.

Oil futures traded at $8.30 per British thermal unit [mmBtu]The year’s total rose 137%. There is a heat wave in South America, with some areas experiencing temperatures exceeding 100 degrees. The National Weather Service,This week, high temperatures records will be either broken or tied in Texas and Oklahoma.

U.S. consumers and businesses are being hit hard by higher natural gas prices at a moment when gasoline prices and diesel fuel prices continue to rise. Palmer said utilities that normally switch to coal for power when natural gas prices rise are finding that coal is even more expensive — the equivalent of $9 to $10 gas.

Palmer stated that the likelihood of high prices this summer in the double-digits is increasing.

Although the gas prices in Europe have risen sharply due to Russia’s invasion, prices in the United States are also rising. Russia was providing about a third Europe’s natural gas.

The U.S. price of LNG is not linked directly to the global market. However, about 15% of the nation’s gas production goes overseas as liquid natural gas. European LNG prices average four times the price in Europe.

U.S. manufacturing declined sharply after the pandemic. However, it is slowly recovering. According to the CDC, U.S. monthly production decreased from 118.7BCF in December to 115.2 BCF in February. latest government monthly data.

For sure, we’ll top $10. John Kilduff of Again Capital, a partner said that he would place $12-14 as the upper range. It is a commodity which trades parabolically quite a bit. This commodity is not afraid of parabolic movements up and down. It is extremely volatile and has the potential to rebound. It could go as high as $10 or $12, but if August is cool enough you might be back below $8.

The U.S. market is experiencing tight supply. Due to unusually low gas storage levels, cold spring and heat waves have created greater demand than is normal for this time of year. It has been more challenging to increase inventories. A portion of the gas being saved for next winter has been used.

Kilduff stated that storage levels were 18% lower last year than they were and 16% less than their five-year average. Kilduff said, “Now there are the additional pressures coming LNG exports that have meaning.” It’s keeping the U.S. from becoming wildly oversupplied with gas or having high storage levels for gas, which would drive down the price.

Kilduff estimates that last week, 90 BCF gas was stored. Thursday’s Energy Information Administration report will be available.

He said, “We are starting in a large hole.” We need to behave like squirrels, putting away acorns, because if there is a heat wave it slows down the flow of water and drives up the prices. Triple-digit injections are required.”

Although the warmer temperatures were expected, Bespoke Weather stated that the models are “growing more insistent about the return to stronger heat as the month ends and heads into at least June”.

Bespoke stated that total gas demand for the next fifteen days will be higher than normal. “This is likely the base state we will have for the summer season, given the persistence of La Niña, where we are skewed hotter than normal, with occasional variability back to just near normal at times,” the firm noted in its Tuesday comments.

Analysts say the gas market tends to remain quiet during this season, but Kilduff believes that this week’s price action could signal what the summer will look like if it continues to get warmer than average. Kilduff said that the recent developments in Texas’ Electric Reliability Council of Texas prompted the price of gas to rise after the Electric Reliability Council of Texas urged consumers to conserve power following six unexpectedly reduced outputs.

Kilduff stated that power problems in Texas may impact oil production and energy supply if they persist or recur.

Rob Thummel (senior portfolio manager, TortoiseEcofin) stated that “normally, this is an extremely calm time for the markets in energy.” “The month May is generally quite optimistic. … It seems like it is an early summer. Hot weather will likely have the same impact as very cold weather. This is going to make an impact.”

“Coal is the usual release valve. Right now, it’s not possible. Thummel stated that the consumer was “kind of at the mercy mother nature at this stage for the summer.”

Thummel stated that the futures market predicts gas prices will remain in the $8 to $9 range for almost a year, before dropping below $5 next April. Given the current state of the industry, Thummel stated that the price was too high.

The current environment is more reflected in $55. He said that we probably face a geopolitical threat of $3 or more.

Thummel claimed that U.S. Production is increasing, and companies possessing pipelines such Kinder MorganThe Permian Basin area of Texas is expanding their capacity.

Although the U.S. wants to increase natural gas exports to Europe in order to compensate for Russian shortages, it is important to expand both its import and export capacities. Thummel stated that exports will increase to 20% of U.S. output in the coming years.

This should help to support U.S. price increases.

“Last year at that time” [the price]Kilduff stated that it was less than $3. Kilduff stated that $1.50 is the lowest price for such a limited time in the past couple years.