Natural gas soars as cold grips homes, drillers
NEW YORK (AP) — America’s frigid winter of 2014 is setting the price of natural gas on fire.
Friday, the price in the futures market soared to $5.18 per 1,000 cubic feet (28.32 cubic meters), up 10 percent to the highest level in three and a half years. The price of natural gas is up 29 percent in two weeks, and is 50 percent higher than last year at this time.
Record amounts of natural gas are being burned for heat and electricity. Meanwhile, it’s so cold that drillers are struggling to produce enough to keep up with the high demand. So much natural gas is coming out of storage that the Energy Department says supplies have fallen 20 percent below a year ago — and that was before this latest cold spell.
“We’ve got record demand, record withdrawals from storage, and short-term production is threatened,” says energy analyst Stephen Schork.
Natural gas and electric customers are sure to see somewhat higher rates in the coming months. But they will be insulated from sharp increases because regulators often force natural gas and electric utilities to use financial instruments and fuel-buying strategies that protect residential customers from high volatility.
To understand the price increase, just look at the thermometer. A second major cold snap this month is gripping much of America, including the heavily-populated Northeast. And forecasters are now predicting colder weather in the weeks to come, extending south through Texas.
Natural gas is used by half America’s households for heating, making it the most important heating fuel. Electricity is the second most popular heating source, and electric power generators use natural gas to generate power more than any other fuel except for coal.
Commodity Weather Group, which predicts heating demand for energy companies and consumers, said in a report Friday that periodic breaks in the cold weather are expected to be “weaker and briefer, extending the duration of colder weather” in late January and early February.
Electric utilities have for several years been switching to cheaper natural gas for power generation. And new pipelines aren’t being built fast enough to deliver all the gas required at times of high demand. That can lead to regional shortages that send prices skyrocketing.
In some producing regions in Pennsylvania gas was selling for below national benchmarks Friday, But closer to East Coast cities it was selling for 10 times those benchmarks because producers couldn’t get their gas into packed pipelines, according to Citibank energy analyst Anthony Yuen.
Analysts say there is plenty of gas to replenish supplies, and drillers will likely ramp up production so they can fetch prices they haven’t seen since June of 2010.
That could push prices back down somewhat in the coming weeks. If, that is, the weather warms up later in February and March. If it’s still cold when baseball season opens in early April, though, Schork says, “we’ll be looking at much higher natural gas prices.”
Jonathan Fahey can be reached at http://twitter.com/JonathanFahey.