U.S. NATURAL GAS PRICE HITS 14-YEAR HIGH

Natural gas prices in the U.S. have tripled in the last year, rising 20 percent this month alone to pierce through $9 per million British thermal units (BTUs), The Wall Street Journal reported.

The price is the highest since 2008.

Natural gas is prime fuel for electricity generating plants. As a result, the price of electricity is rising, pushing prices up across the economy for manufacturers who transfer that extra cost to consumers in the price of everything from diapers to tires to wallboard.

For example, Dollar Tree has bumped the price of most items in the store to $1.25, CFO Kevin Wampler told analysts in an earnings call last week.

“Natural gas price increases are affecting utility costs throughout the business,” he said.

If gas supplies fail to increase soon, prices could easily climb higher still now that the summer air-conditioning season is here, industry insiders told the WSJ.

At the same time that people crank up the AC and demand more electricity, utility executives will be trying to put gas into storage against this winter’s heating season.

The pinch comes at a time when the U.S. has committed additional gas supplies to Europe, which is trying to escape its dependence on imported gas from Russia.

However, U.S. oil companies are not increasing gas production.

Instead, under pressure from Wall Street, oil and gas producers are hoarding cash and boosting stock dividends paid to investors, as we reported in “Oil Majors Withhold Investment in New Production” (3 Aug 2021), “U.S. Oil Industry Will Not Raise Output, Executives Say” (29 Mar 2022) and “Oil Majors Use Cash to Buy Back Stock, Increase Dividends” (10 May 2022).

On 13 May, U.S. natural gas inventories were about 15 percent lower than their five-year average, according to the federal Energy Information Administration.

Also, Appalachian coal—the usual alternative to gas—is setting price records, while droughts in the western U.S. have slashed hydropower production. (See related story in this issue.)

Both factors are adding additional demands on the country’s increasingly thin gas supply.

“There’s almost no ceiling for natural gas,” analyst Kent Bayazitoglu at Baker & O’Brien, an energy consulting firm, told the WSJ. “You can reduce your driving a lot easier than you can reduce your natural gas consumption.”

TRENDPOST: President Joe Biden has made commitments to the Western alliance opposing Russia’s war in Ukraine that the U.S. will ship more gas to Europe. He will remain unwilling to break that commitment, as it could weaken other allies’ resolve to keep their promises.

As we reported in “U.S. LNG Shipments to Europe Tighten Domestic Gas Supplies” (5 Apr 2022), the Biden administration probably is already eyeing a plan to invoke the Defense Production Act to order oil and gas producers back into the field later this year to meet domestic needs as well as to fulfill U.S. commitments to Europe to increase LNG deliveries. 

However, despite these actions, considering the new gas sanctions the EU has put on Russia as we detail in this Trends Journal… high fuel prices are the future.